Good day, ladies and gentlemen, and thank you all for joining us for this La-Z-Boy Fiscal 2021 Second Quarter Conference Call. As a reminder all phone lines are in a listen-only mode. And for opening remarks and introductions, I’m pleased to yield the floor to Kathy Liebmann with Investor Relations. Good morning, Ms. Liebmann..

Good morning, and thank you, Jim. Thank you, everyone, for joining us to discuss our fiscal 2021 second quarter results. With us today are Kurt Darrow, La-Z-Boy’s Chairman, President and Chief Executive Officer; and Melinda Whittington, CFO. Kurt will open and close the call, & Melinda will speak to the financials move through.

We will then open the call to questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for one year, and a telephone replay of the call will be available for one 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 and other matters. Although we believe these statements to be reasonable, our actual results could differ materially.

The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. We encourage you to review those risk factors as well as other key information detailed in our SEC filings. Also our earnings release is available under the News and Events tab on the Investor Relations page of our website.

And it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck. With that, I will now turn over the call to 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 strong operating results for our fiscal 2021 second quarter reflecting record demand trends and strong execution across all of our businesses.

But before I begin discussing the quarter, I would first like to acknowledge and thank our almost 9,000 employees who have demonstrated resiliency, a commitment to safety and the dedication to La-Z-Boy throughout the pandemic with a focus on serving our customers. I could not be prouder of the team and every member has my respect and admiration.

Now on to the results. During the quarter, we experienced strong written orders as consumers continue to allocate more discretionary dollars to their homes rather than on travel and other leisure related activities.

The company delivered increases in sales and operating income with a double-digit consolidated operating margin, reflecting excellent performance across all companies. Also contributing this quarter was Joybird, which turned profitable for the first time in acquisition, fueling an increase in earnings per share.

Additionally, we generated 196 million in cash from operations for the year-to-date period, increased our company-owned store footprint with an acquisition paid a dividend and ended the quarter with no borrowings outstanding on our credit line.

All in all, for the quarter, these are outstanding results, particularly as our supply chain had to turn on a dime last spring to restart production after the COVID-19 related shutdown and continues to ramp up capacity to satisfy unprecedented demand levels.

While we are increasing production weekly, demand acceleration continues to outpace capacity acceleration creating a record backlog and extended lead times.

Across the La-Z-Boy furniture gallery network, written same-store sales increased 34% demonstrating the strength of our brand and its appeal to consumers during uncertain times as well as the ability of our store teams across the network to provide a safe shopping experience for consumers.

As I turn to a discussion of our segments, my remarks will detail our non-GAAP numbers, which we believe reflect underlying operating trends, and Melinda will cover the non-GAAP adjustments. I will start with our wholesale segment, which, as a reminder, now includes both upholstery and case good companies as well as our international businesses.

For the quarter, our backlog grew to record levels, but delivered sales declined 2% to 343 million. This was primarily the result of lower delivery unit volume as our ongoing efforts to significantly increase our production capacity to meet demand were offset by a temporary supply shortage of Foam, which reduced sales by more than 2%.

However, even with a decline in sales, non-GAAP operating margin increased to 12.2%, reflecting tight cost controls, with ongoing cost savings projects roughly offsetting investments in our start-up capacity ramping.

Operating margin in the period also benefited as we pulled back on our marketing spend, given the strong demand environment and had lower expenses such as travel costs due to COVID-related restrictions and lower salary and wages due to the business realignment plan and reduction in force announced last quarter.

With the surge in product demand, our challenge has been to ramp up capacity at all plants and expand our overall production capacity.

Our current backlog for the La-Z-Boy branded business is five times what it was at the end of Q2 last year, and we are quoting lead times of 16 weeks to 26 weeks depending on product category, which also include an estimate of the delivery time to the ultimate customer.

Our supply chain has done an excellent job to increase weekly production while identifying new opportunities for both short and long-term. We have added production sales at our three U.S.-based upholstery manufacturing facilities as well as additional weekend shifts.

Secondly, we have temporarily reactivated a portion of our Newton, Mississippi assembly plant to service select geographics. We have also added manufacturing cells and available for space at our cut-and-sew center in Mexico, allowing us to tap into a new labor pool.

And finally, we signed a lease on a 200,000 square foot facility in Mexico, just south of Yuma, Arizona and San Luis Rio, Colorado. Production is expected to start in December, with full ramp-up extending over the first half of the new calendar year.

As part of our longer-term strategic plan, we were looking to expand our manufacturing footprint to more efficiently service the western portion of North America. And we are excited to take this first step with the new facility in Mexico which we will be calling SLRC.

Once all of these operations are producing at expected capacity likely later in our fiscal year, these moves will significantly increase our capabilities and capacity to support long-term growth.

However, during our second quarter, the industry experienced temporary supply shortages of fall due to disruption in TDI production, a key component of this product. As a result, we were limited in our ability to fully utilize our existing capacity for almost two weeks during the quarter.

We have recently learned of new issues with foam supply in November, which will again temporarily limit our ability to maximize output in the third quarter.

While we believe these disruptions are temporary in nature, they affect the entire industry and other industries that use foam, and they highlight the volatility of the global supply chain in these unusual times. Now let me pivot to the commercial side of the La-Z-Boy branded business.

During the pandemic related shutdown, as you would imagine, we saw a significant increase in our online business. While at peak during that time, today, our written e-com business remains up some 300% versus pre-pandemic levels concurrent with an increase in-store traffic and sales.

I would note that our e-commerce business is still a very small percentage of our overall business. We recognize it is critical to have a robust online presence in today’s environment.

While the core La-Z-Boy customer continues to demonstrate a preference to shop in-store, she typically starts by spending time on our site to research product, and our goal is to facilitate a seamless cross-channel experience.

For example, if the consumer wants to come into the store for a higher level of service, wants to touch and feel the product and possibly work with a designer, but prefers to make the final purchase from the comfort of our own home, we are working to make that entire process as seamless as possible.

We are also making a series of ongoing enhancements to the Omni-channel experience, from internal process improvements to enable scale to customer-facing enhancement that simplify and broaden the online experience.

As an example, we are working to simplify the ability to custom customize online, ensure all products sold in-store are available on our website, enhance consumer visibility to available inventory and order progress and drive better pricing consistency between online and in-store.

This will be a journey, and we are excited about growing with the changes in consumer behaviors in the Omni-channel space. On the marketing side, we continue to be very pleased with Kristen Bell as our brand ambassador.

One of our objectives is to increase consideration among a new generation of consumers, 35 year to 44 year old, which we view as our opportunity customers.

At the same time, we want to ensure our marketing campaign continues to resonate with our core 45 year to 65 year old customers who have more disposable income and tend to purchase furniture at higher price points. Kristen is equally appealing to both consumer groups.

In particular, younger consumers view her as having a great sense of style and being relatable to them. This makes our marketing dollars work harder and be more efficient. Now turning to the product side. Last month was the high point furniture market.

While we did have some customers visit our showroom, both during pre-market and regular market, our merchandising and marketing team did a fantastic job putting together an interactive virtual market for our customers to see and learn about product and marketing initiatives while maintaining personal safety during the pandemic.

Sectionals and power motion continue in popularity, and we introduced a comprehensive new stationary leather program that allows for customization and quicker delivery times than imported product, which was very well received. We also introduced a antimicrobial fabric collection as part of our expansive high clean line.

Now let me return to the retail segment.

For the quarter, delivered sales increased 9% to 162 million and written same-store sales for the company-owned La-Z-Boy Furniture Galleries stores increased 36% reflecting strong traffic trends and demand as well as stellar execution at store level, including an increase in conversion and average ticket driven by increased units and more design sales.

For the period, deliver same-store sales for the core base of 150 stores increased 6.3%.

Non-GAAP operating margin for the segment improved to 9.4% from 5.8% in last year’s comparable quarter, resulting from fixed cost leverage on a higher delivered sales volume, lower spending on marketing due to the already strong demand environment; and reduced expenses, including travel-related spending due to COVID.

Also during the quarter, in September, we completed the acquisition of six Seattle based La-Z-Boy Furniture Galleries stores, which had approximately $30 million in annual retail sales in Calendar 2019 and one distribution center.

As the company is already recording a portion of the Seattle based store volume in its wholesale segment, the acquisition of these six stores is expected to contribute approximately $15 million of additional sales annually to the company on a consolidated basis based on their calendar year 2019 sales.

For the current second quarter, they added $3.5 million of sales to our retail volume segment. The Seattle Stores has historically performed above the network average and we believe there are great prospects for the company in this dynamic market.

Over time, we plan to make investments in the operation with store remodels and potential new stores so that the store remodels and potential new stores so that the business can continue to grow and expand its potential. I now want to spend a few minutes on Joybird, which delivered its first profitable quarter.

Since purchasing Joybird, we have been on a journey to build and strengthen the Joybird business and integrate systems to take advantage of the synergies between Joybird and La-Z-Boy. On the front end, Joybird gives us a new customer and channel.

And on the back end, our supply chain has delivered value through our regional distribution centers, manufacturing Joybird product at our Dayton facility and combined purchase power. While these synergies took longer than anticipated, they now have come to fruition, and we are very evident in the results for the period.

Sales for the second quarter, which are reported in corporate and other increased 42% to $29 million. For the period, Joybird improved its gross margin significantly and lowered SG&A costs, driven primarily by lower marketing spend and other expense reductions.

Written sales increased 25% in the quarter, reflecting the ongoing strong demand trends that we are seeing across all of our businesses. We are encouraged by Joybird’s performance for the quarter and optimistic about its trajectory for accelerated growth as we move through the year.

We believe Joybird is on a run rate to be a $90 million to $100 million business this fiscal year and expect it will be profitable for the full-year. Moving forward, we will continue to balance investments in top line growth while watching bottom line performance. I will now turn the call 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. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business.

As detailed in our press release and in the tables of the appendix section of our the tables of the appendix section of our conference call slides, excluded from our fiscal 2021 second quarter non-GAAP reporting are pretax purchase accounting charges related to acquisitions totaling $3 million or $0.06 per diluted share, primarily due to a write-up of the Joybird contingent consideration liability based on an updated forecast of future performance.

And a pretax charge of $300,000 or $0.01 per diluted share related to the Company’s business realignment announced in June, which included a 10% reduction in our global workforce and the closure of our Newton, Mississippi manufacturing facility.

Last year’s second quarter non-GAAP results exclude a pretax charge of $2.8 million or $0.04 per diluted share related to the Company’s supply chain optimization initiative which included the closure of our Redlands, California facility Calendar 2019 and one distribution center. As the grow and expand its potential.

always, let me remind you that we present our results on both a GAAP and non-GAAP basis. We top line growth while watching bottom line the current second approximately $30 and relocation of our Newton, Mississippi leather cut-and-sew operation.

A pretax purchase accounting charge of $1.6 million or $0.03 per diluted share, primarily related to Joybird and pretax income of $1.9 million or $0.03 per diluted share related to the 2019 termination of the Company’s defined benefit pension plan. Now on to our results.

My comments from here will focus on our non GAAP reporting, unless specifically stated otherwise. On a consolidated basis, fiscal 2021 second quarter sales increased 2.7% to $459 million, reflecting record demand across all businesses.

Consolidated non-GAAP operating income increased to $51 million versus $34 million in last year’s quarter, and consolidated non-GAAP operating margin increased to 11.1% versus 7.5%. Non-GAAP EPS was $0.82 per diluted share in the current year quarter versus $0.52 in last year’s second quarter.

Consolidated gross margin for the second quarter increased 240 basis points. Changes in our consolidated sales mix due to growth in our retail segment and contribution from Joybird, both of which carry a higher gross margin than our wholesale businesses drove the biggest change in margin.

Additionally, Joybird experienced a significant improvement in gross margin, primarily resulting from supply chain synergies and improved plant performance.

SG&A as a percent of sales, decreased 120 basis points, reflecting ongoing expense management, a decrease in advertising spend given strong order rates, reduced spending, including travel and limited furniture market events due to COVID-19 related restrictions, and a decline in salaries and wages related to our business realignment plan, including the 10% reduction in first announced in June.

This was partially offset by changes in our consolidated mix due to the growth in our retail segment and Joybird, both of which carry higher SG&A costs than our wholesale business as well as an increase in selling expenses on strong written order trends.

On a GAAP basis, our effective tax rate for fiscal 2021 second quarter was 26% versus 26.6% in last year’s second quarter. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes.

For the full fiscal 2021, 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.

Year-to-date, we generated $196 million in cash from operating activities, reflecting strong operating performance and a $100 million increase in customer deposits from written orders for the Company’s retail segment and Joybird.

We ended the period with $353 million in cash, nearly triple the $120 million in cash at the end of last year’s second quarter. In addition, we held $27 million in investments to enhance returns on cash compared with $33 million last year.

During the quarter, we repaid the $50 million remaining balance on our credit line drawn back in March in conjunction with our COVID-19 action plan. We ended the quarter with no borrowings outstanding.

Year-to-date, we have invested 15 million in capital, primarily related to machinery and equipment, upgrades to our Dayton manufacturing facility, which have now been completed and investments in our retail stores.

We expect capital expenditures to be in the range of expenditures to be in the range of 40 million to 45 million for fiscal 2021, although spending will be largely dependent on economic conditions, continued business recovery and liquidity trends.

Our spending for the year will include upgrades to upholstery manufacturing facilities and costs for the new production capacity in Mexico, technology upgrades and improvements to several retail stores.

Also during the quarter, given solid business trends and our strong cash position, we reinstated our 401(k) match for employees as well as full salaries for remaining senior management, thereby reinstating all ongoing cash uses for operations that were temporarily suspended as part of our COVID-19 action plan.

Regarding cash returned to shareholders, yesterday, our Board declared a quarterly dividend of $0.14 per share, restoring the dividend to the full amount that was in place prior to the pandemic.

Recall, as part of our COVID-19 action plan, to preserve cash and provide for financial flexibility, we eliminated our expected June dividend and temporarily suspended opportunistic share repurchases.

In August, our Board of Directors elected to reinstate irregular quarterly dividend to shareholders of $0.07 per share, 50% of the quarterly dividend amount paid prior to the pandemic, paying $3.2 million to shareholders in the second quarter. We are pleased to now reinstate the full dividend of $0.14 per share, which will be paid in December.

And finally, going forward, we will continue to monitor and assess business conditions to determine when it may be appropriate to resume share repurchases. There are 4.5 million shares of purchase availability under our authorized program. Before turning the call back to Kurt, let me highlight several important items for the remainder of fiscal 2021.

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 $0.11 per share for the full-year.

This excludes any further adjustments to the Joybird contingent consideration liability dependent on Joybird’s ongoing business trajectory. On our non-GAAP results, let me provide a bit more perspective on what we anticipate for the back half of fiscal 2021.

While we do not intend to provide this level of forward-looking perspective regularly, we think it is important to offer it in the near-term, given the unusual business trends driven by the pandemic. We are optimistic about our business trajectory and confident we will deliver a strong second half based on the factors we can control.

However, there is still extreme uncertainty with respect to COVID-19, including the risk of related shutdowns impacting our facilities and impacts of global supply chain volatility, such as the recent industry-wide foam issues.

What we do know is we have a significant backlog and we are working hard to ramp our production, shortening delivery times as we work to service our customers with high-quality products and quick delivery.

With the initiatives undertaken to expand output, we will continue to significantly increase production capacity throughout the back half of the fiscal year.

Further, to cover raw material cost increases that we are experiencing now we have announced pricing on new La-Z-Boy written orders beginning in October, which will be realized on orders delivered beginning in the fourth quarter, given our significant backlog.

Considering all of these factors, accounting for our best current understanding of new form availability issues and provided there are no significant shutdowns of our facilities related to the pandemic, we expect to deliver consolidated sales growth in the third quarter of flat to 4% above last year’s record high third quarter.

For the fourth quarter of fiscal 2021, accounting for continued growth in production capacity, announced pricing and the effects of last year’s April pandemic related shutdown in the prior year’s fourth quarter base period. We anticipate fiscal 2021 fourth quarter sales growth of 40% to 45% and versus last year’s fourth quarter.

On profit, we expect to continue to deliver historically high consolidated operating margins of approximately 9% to 11% for the balance of the year, providing the strong delivered sales volume is achieved.

Included in these margin expectations is the anticipation that Joybird will sustain profitable operations even as we test investment effectiveness to optimize top line growth. We do expect some volatility in margins quarter-to-quarter as we manage multiple factors.

Including input cost increases that we are experiencing now without the benefits of pricing until late in the year. Beyond the current fiscal year, we have even more unknowns on a continued pandemic effects, demand trends and supply challenges, but our business is strong, and we are optimistic for the future.

However, I would note that there will eventually come a time when we will have to once again invest more in marketing to drive demand similar to pre pandemic times. We have been a benefactor of the sector rotation that has taken place over the last several months, which play well for us.

Although this has allowed us to keep our marketing spend at reduced levels, in time, it will be necessary to increase it.

There will be other costs that will resume over time as the pandemic is brought under control as well, including those for travel, furniture market, and spending for other discretionary projects that were canceled or postponed due to COVID-19.

That said, we do anticipate being able to deliver strong margin performance over the long-term as incremental investments related to bringing on new capacity are completed, and we return to more stable operating patterns. And now I will turn it back to Kurt for his concluding remarks..

Thank you, Melinda. As you can see, we are very pleased with the agility of our entire organization has demonstrated as it responds to the new operating environment. Our supply chain team is pulling out all stops to drive production.

Our merchandising and marketing teams have pivoted to find new ways to showcase product highlight the La-Z-Boy brand and its attributes and target consumers in a manner that will drive growth for the long-term. And our retail team is performing at a very high level providing a great store experience for customers while keeping them safe.

And all of our other operating companies, including Joybird, England, Casegoods and our international business are also adapting to the landscape and performing very well. We believe the strength of the La-Z-Boy brand carries great weight in this environment as consumers tend to gravitate to brands they know and trust during uncertain time.

With our vast distribution, including the vibrant La-Z-Boy Furniture Galleries stores and thousands of other distribution points, our world-class supply chain, successful marketing platform focused on expanding our Omni-channel offering and our strong balance sheet, we believe we are extremely well positioned to continue to navigate and thrive in this environment capture market share and return long-term value to our shareholders.

We would like to thank all of you for your interest in La-Z-Boy this morning, and I will turn the call over to Kathy to provide instructions for getting into the queue. Kathy..

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

I would be happy to. Thank you. [Operator Instructions] We will hear first this morning from Bobby Griffin at Raymond James..

Good morning Kurt, Melinda and Kathy. Thank you for taking my questions. I hope everybody is doing well and staying safe..

Good morning..

Good morning Bobby..

The first thing I want to talk about was just the written growth, clearly impressive numbers out of the La-Z-Boy branded distribution.

Can you maybe provide a little color on how the non-La-Z-Boy branded distribution performed during the quarter from a written perspective, was it close to the same or just as strong or anything to help us kind of sum up your whole entire distribution network?.

So in general sense, Bobby, all of our businesses have benefited from the sector rotation and what is been going on around the world. We have had a little more hiccups in Europe in our business, particularly in Great Britain.

And our Casegoods business comes and goes on a weekly basis based on inventory availability because we import all the case goods, but everybody in the whole nation this quarter, contributed mightily to our success.

Obviously, La-Z-Boy and the La-Z-Boy Stores are the largest components of it, but everybody else exceeded our expectations for the quarter..

Okay. That is helpful. And I’m just trying to understand kind of the quarterly progression here, given the big rate number and then 3Q and then work in between of 4Q.

When we look at the flat to up 4% and think about that, is there any way to frame how big of a drag the foam and supply chain or kind of raw material side of the equation is? And understanding I’m trying to look more just from the materials side, understanding that the labor and getting things ramped up in the plant time, but the shortage of foam and all that, how much is that shifting delivered sales from 3Q into 4Q?.

Yes. I would think about it in terms, Bobby, we continue to ramp up production. I mean, I think it is telling that if you look just on total sales from Q1 to Q2, our sales throughput was up like over 50%, right, on a consecutive quarter basis, and we will continue to make so really solid progress in Q3 and again in Q4.

The broad range of flat to 4% for Q3 really accounts for the broad range of where the outcomes could be around foam. We called out that there was almost a 2% impact of foam on the wholesale business in Q2 and it is not unlikely that it is in that same kind of range for Q3.

But I mean, this is literally late-breaking news as of this past week where we thought this was pretty much under control for the industry and then have learned that it is not. So it really accounts for that breadth.

And I would also call out that Q3, as I mentioned in my prepared comments, last year, was an all-time record sales quarter for the La-Z-Boy enterprise. And so it is a pretty significant base that were on top of as well..

Okay. And then I guess, lastly for me. Just wanted to quickly touch on capital allocation, and Melinda and Kurt, you guys both kind of called it out a little bit in your prepared remarks, but the cash balance here is significantly above where it has been really throughout history here at La-Z-Boy.

Understanding some will have to work its way down as production ramps up.

But with that size of a cash balance, can you maybe just talk about where your views are and what is the comfort level of cash in this uncertainty?.

Great question. And the answer is a little bit like the foam issue. The honest answer is we don’t know what the next few months, we hear about how bad the pandemic is right now, and it is going to be a tough winner for everybody. So given our conservative nature, we are looking at a lot of opportunities. We are going to deploy some of that capital.

We would look to do acquisition if it made sense, but we don’t want to get ahead of ourselves because I’m not yet ready to declare victory over the pandemic and over the global supply disruptions. And how fast we have gone from having to borrow some cash to now being flushed with cash.

I’m not sure anybody would have predicted that quick of a turnaround. But we have experienced that. And I think you can be pre-assured, Bobby, that we are not going to sit and not utilize some cash to advantage our business going forward. But at the present time, I’m not able to give you specifics..

Okay. That is helpful. And I would say, Kurt, I sure didn’t predict that high of a cash balance and not quick return around to answer your question. So but -.

And I would say, Bobby, the other thing about the fourth quarter is that is when we are hopeful that midway through that quarter, that all of the things we have done, and I’m not aware of many other furniture manufacturers have added this much extra capacity for the long-term. We are supposed to have a lot of that online by then.

So it is the comparison to the previous year, which was a total shutdown, but it is also that the extra capacity that we work so hard on to get comes into full support of the organization. So we will whittle down our backlog unless this extraordinary demand continues at this level. But that is the big bubble we hope to get through in Q4..

Okay. I appreciate the details. Congrats again on managing through pretty challenging environment..

Thank you..

Our next question will come from Brad Thomas at KeyBanc Capital Markets..

Thanks good morning Kurt, Melinda and Kathy. Congrats on a nice quarter here. I wanted to follow-up on that last line of conversation about the capacity.

And if I do some quick math, on the sales outlook for the fourth quarter or the high end of the range, I think would be about 530 million of revenues in the fourth quarter, that would be up maybe about 17% from what you just did this quarter and maybe a similar kind of increase from where you were in the fourth quarter of two years ago.

So I guess, is that 530 million number kind of a good way for us to think about maybe what the upper limit of sales might be in a given quarter at this point with your capacity? And maybe you could describe, otherwise in percentage terms, how much do you think, Kurt, you will be raising the bar with some of the investments you are making right now on capacity? Thanks..

Yes. I will take that one. We tried to give a bit of a range and perspective that we don’t normally do because we recognize it is such an unusual time. And so almost by definition, our ranges are showing the potential for outcome.

If absolutely everything goes right and our best estimate of things don’t go as well, but are still within reason both for the third and fourth quarter. As Kurt noted, the march to add capacity, and we called out four different items that are underway.

Probably the most significant for the long-term is our investment in SLRC, which is a part of an ongoing strategic plan we have had for a while in how to best service the West Coast. And as we have called out before, each one of those take some time. And so we have made a lot of progress in our existing facilities on hiring and training.

We have called out before that training people take six-months to nine-months to really get them up to sort of an average throughput. So SLRC coming online in the back half and really getting up to full speed in the fourth quarter will be a big chunk of that capacity expansion.

And that is all folded into that 40% to 45% uptick on sales that we have given perspective on for the fourth quarter. Again, that number obviously benefits from April a year ago being shut down. But even if you back that out, you’ll see there is incremental growth even beyond what we are doing in the third quarter..

And just to add, Brad, we would have the capacity to manufacture that much furniture during the fourth quarter, but it is all dependent on the global supply chain. And maybe we don’t know, but maybe the foam is just the tip of the spear. Lots of challenges right now with containers, lots of costs going up.

There is going to be huge pressure on demand from Christmas to Chinese New Year.

And so what we are capable of and what we will be able to do based on how all of our partners support us, which they have been great so far, and we haven’t had any hiccups to-date other than the poly issue, but there is still some uncertainty, and there could be something.

So we just don’t want to get over our skis here and assume everything is going to be perfect..

That makes sense. That is helpful. With respect to the Seattle acquisition, could you just talk a little bit more about how that is going so far and as you talk to the independent dealers, what is your sense of the likelihood of additional transactions in the year ahead? If there is any color you could share..

Well, in the first comment, the Seattle acquisition is going really good. It was a real smooth transition. We had a strong ownership in Seattle that had things in good shape but had a great team, and we have got things transferred and they have hit the ground running. So it is doing what we expected.

We will be making some investments in that market soon to upgrade some stores and maybe some new ones. So we are very pleased with that. And I do believe, as we have had a continuing cadence on this, there will be some other of our licensees that may consider retiring or selling their business.

They would have perhaps this year, a record year, and maybe in that mode. But we are always giving the right circumstances, we are willing to talk with our dealers and try to figure out what is best for both of us.

So that is still a very active part of our longer-term growth strategy is to continue when available and making sense that we can service it, continuing to add stores to our portfolio..

That is helpful. And if I could squeeze one more in around margins. I greatly appreciate all the financial commentary you have shared about how to think about the next two quarters. I think the comments are that you expect operating margin to be in the 9% to 11% range for the balance of the year.

Any thoughts or anything we should keep in mind as we think about 3Q margin versus the 4Q margin, I mean, it would seem to me that in 4Q, you are looking at some very strong sales results, some benefits of the price increase going through and perhaps that 4Q margin then is higher than the 3Q margin.

Is that a reasonable conclusion or are there any other thoughts that we should keep in mind as we fine-tune our models?.

Yes. I think as I called out in the prepared remarks, probably the biggest thing to think about is we are already starting to experience of higher input costs on poly, on lumber, on nonwoven, on ocean freight, and we have put pricing in place.

But to be good partners to our customers we did not put that pricing in place on orders that had already been written that were sitting in our backlog. Which is obviously a significant number of orders at this point. So we really won’t start to see that pricing benefit come grow until we are well into the fourth quarter.

So to your point, that would be probably input costs input costs one of the major trends between three.

Beyond that, as I called out, we are definitely pulling back appropriately so, but on some of our ad spend right now because we have got this significant backlog, and we don’t want to drive even increasing demand that just frustrates the consumer in the near-term.

So we have kept our marketing out there to build brand equity across our brands but we are not at an all-time high of demand driving ad spending, which at some point will need to turn back on some of that. In the same way, market was reduced, reduced travel, obviously, reduced training.

There are just a lot of things that businesses aren’t doing today because of the pandemic that will eventually turn back on to some level, probably not very likely from what I’m seeing that that happens in the balance of this fiscal, but it is something to keep in mind for the future..

Great. Thank you all so much..

Thank you..

Thanks Brad..

[Operator Instructions] We will hear from Anthony Lebiedzinski at Sidoti & Company. Please go ahead..

Hi yes, good morning everyone and thank you for taking the question.

I may have missed this, but did you guys quantify the record backlog? I think you said it was five time larger than a year ago, but I don’t know if you guys give a specific dollar amount?.

We did not. Five ties is very significant and why we have gone from delivery in four weeks or five weeks to 20 plus. So it is it is unprecedented, and we are doing the best we can to deal with it. It is not a specific La-Z-Boy problem. It is an industry problem. And our customers have been very patient and waiting a long time for products.

But yes, it is it is a big number, Anthony. And I think the magnitude was the five times and the fact that our orders are out into March gives you some magnitude of what it is. But we did not give a number..

As we have said in the past, I mean, great problem to have, right, in backlog is the outcome of two things. It is the pace of demand coming in, and it is the pace of what we are manufacturing take out of that backlog. We continue to exponentially increase our capacity and ability to make product.

But at the same time, we continue to experience pretty amazing demand. And so again, as we have said before, high-class problem to have, but there is no doubt, five times. And that is for our La-Z-Boy branded wholesale business, five times the business, five times the backlog of this time last year is quite significant..

And add to that Antony, that we are going in traditionally, it could be different this year, but we are going now traditionally into the highest seasonality of the buying cycle for furniture between now and February.

So it may be dampened a little bit with COVID and dampened a little bit by the extended lead times, but we are headed into what is typically a strong - and we could add to that backlog if everything goes the way it has been trending..

Got it. Okay. I definitely appreciate that. So as far as Joybird, so now that you have improved your supply chain efficiencies.

What would you say would be kind of on the minimum quarterly revenue run rate for Joybird to be profitable?.

Well, I think we gave you what we expect for the year. We gave you the $90 million to $100 million pace and expect it to be profitable for the whole year. There will be an ebb and flow in certain months, depending on seasonality depending on how much marketing investment we make.

And we said from the beginning, we wanted Joybird to grow above our core businesses. But we wanted them to do it without being a drag on the Company’s earnings. I think we have found that middle ground. And so we will be testing and watching how effective our marketing is for growth without giving up all the bottom line performance.

So we need some more time to let this play out. But we think, at a reasonable level of volume, which they have been doing, they can be profitable. The reason for their profitability at this time was not exclusively volume. There are a lot of structural things.

There are a lot of coordination between La-Z-Boy supply chain and Joybird supply chain that have come full circle and come into fruition, the lower cost efficiencies, get product to customers faster all those things, structurally, the business is in a really good shape now and think it will head that way in the future..

Okay. That is good to hear.

And then as far as the costs for the opening of the new facility in Mexico, did you guys quantify that or are you willing to quantify that?.

No. That is built into all the numbers that we gave you, both on capital and on the perspective for the balance of the year..

Got it. And lastly. Okay go ahead..

It is a relatively asset-light investment with leased space. And so that is part of what we are excited about exploring..

And just so it is primarily an assembly plant. It won’t be stamping, it is mechanism. It won’t be cutting its old frames. They will get those from our U.S. supply centers. So it is not as capital pensive if you build a full facility that handle all of the things that Dayton and Neosho do..

Got it. Okay. So I just wanted to lastly follow-up on the large cash position that you have. So I understand that there is still uncertainty with the pandemic.

I mean would you say if you get better visibility with the pandemic next year, would you guys perhaps consider doing a special cash dividend or maybe a large repurchase? I just wanted to follow-up about that and see what you guys think about it?.

Just to recap a bit on what Kurt said, I think there is a couple of things, no doubt. I mean this is I think the highest cash positions we have probably ever held and within the quarter we have resumed all the normal kind of cash usages internally and externally that we had stopped during the pandemic, we are back to full dividend.

We have restarted in capital projects that we had delayed.

And so as Kurt said there are still so much uncertainty that we will definitely in the near-term hold higher cash balances than we have historically have, but as always we are looking for those capital investment opportunities in our business as well as on the M&A front conservatively given the unusual and unprecedented times that we are living in.

But our focus is to make sure, we are investing in our business for growth, even past the pandemic and evaluating opportunities there. And then as far as returns to shareholders, we resumed the dividend. Comments on special dividends or increased buyback and so forth.

I want to first fully flesh out getting through this pandemic and looking at the opportunities that we can identified to invest in our business and return value to shareholders through growth..

Got, it okay. thank you and best of luck..

Thank you Anthony..

Thank you..

Ladies and gentlemen, that does conclude today’s Q&A session. I will turn it back to the La-Z-Boy’s leadership team for any additional or closing remarks..

Thank you, everyone for participating in our call today. Have a great holiday season, and we will talk to you next quarter. Bye-bye..