La-Z-Boy Inc (LZB) 2006 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the La-Z-Boy Inc. year-end 2006 conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation (OPERATOR INSTRUCTIONS). Also as a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mark Stegeman, Treasurer of La-Z-Boy Inc. Thank you Mr. Stegeman. You may now begin, sir.

Good morning, I Mark Stegeman, Treasurer of La-Z-Boy. I would like to thank you all for joining us on this morning's call to discuss our fiscal fourth-quarter and year-end results for 2006. Present on our call today are Kurt Darrow, La-Z-Boy's President and Chief Executive Officer, Dave Risley our Chief Financial Officer and Patrick Norton our Chairman. Kurt will begin with some prepared remarks and then we will open the call to questions. We would ask that you please limit yourself to one question at a time with a follow-up if necessary so that everyone will have an opportunity to ask questions. A telephone replay of the call will be available for a week beginning this afternoon.

These regular quarterly investor conference calls are one of La-Z-Boy's primary vehicles to provide guidance and to communicate with investors about the Company's current operations and future prospects. We will make forward-looking statements during this call. So I will repeat our usual Safe Harbor remark. While these statements reflect the best judgment of management at the present time, they are subject to numerous future risks and uncertainties as detailed in our regular SEC filings, and they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statements made during this call. And with that let me turn over the call to La-Z-Boy's President and Chief Executive Officer, Kurt Darrow.

Thanks, Mark. Good morning, everyone, and thank you for joining us. My remarks this morning will address a brief overview of our total year, our results for the fourth-quarter, our ongoing strategy to move our business forward and finally what we see for the fiscal first quarter. I will also spend some time talking about the many changes we have made to our organization in terms of our management structure and board of directors. Let me begin with an overall comment on the year. Quite frankly we had two very different halves, where in the first two quarters we moved beyond the issues of the first quarter, gained traction and turned in a much stronger operating performance. Before going through the quarter it is important to put the total year in perspective.

In terms of sales we had 52 weeks this year versus 53 weeks in fiscal '05, and that extra week was in last year's fourth quarter, so our quarter-over-quarter sales comparison reflects 13 weeks for this year against 14 weeks last year. It does appear that some of you did not factor in the difference of weeks to your modeling as a number of estimates for this year's fourth-quarter looks as if they are based on a 14 week period against last year. Our overall sales declined approximately 6% for the year and was a result of a number of factors with most of the decline occurring in the first half. So allow me to briefly recap the challenges of the first six months.

In our upholstery segment last October and into November we faced an unprecedented industrywide shortage of polyurethane foam, which hampered our efficiency and constrained our production. Second, the overall retail environment was soft in wake of higher gasoline prices and increasing interest rates. Third, our Newton, Mississippi manufacturing facilities were damaged two separate times as a result of the hurricanes and fourth, we had a $9 million restructuring charge related to the closure of our Waterloo, Ontario manufacturing facility. In our casegoods segment we were in the ninth inning of our residential business transition to an import model and in our retail segment we had just acquired 21 stores in Chicago, Pittsburgh and Connecticut, and were beginning the lengthy but necessary process to turn those markets into performers.

At mid November the first month of the second half of our year, foam supply returned to 100% of our needs, albeit at significantly higher prices. As I mentioned last quarter given the enormity of the increases upwards of 50%, we adjusted our pricing accordingly and started receiving the full benefit of those changes in January. Additionally in the second half our Newton operations came back online, we began to realize the savings from the Waterloo rationalization and in December our casegoods business completed its offshore transition.

During the course of the entire year we continued to make changes to lower our operating cost structure and with the exception of the soft retail environment the first half issues were largely resolved, and our operating margins in upholstery and casegoods improved significantly in the second half of the year. We performed at 8.1% operating margin in upholstery and 5.3% in casegoods.

Now let's turn to the fourth quarter. La-Z-Boy reported net sales of $508 million, down 10% compared with the prior year period which again included 14 weeks. We had a loss from continuing operations of $0.20 per share which included a write-down of intangible assets of $0.44 per share, a loss of $0.03 per share for VIEs and a $0.02 per share gain on the sale of a property.

On an operating basis our delivered sales fell slightly below expectations as we struggled during the quarter to meet demand. Additionally, our quarter was significantly impacted by the $23 million non-cash write-down of intangibles, and because it carries no tax effect it had a substantial impact on our tax rate for the quarter. The write-down was related to Bauhaus, one of our nonbranded upholstery companies which has suffered a significant decline in sales and earnings principally as a result of the department store consolidation. For the quarter we operated within our target margin [regions] in our largest two segments. In upholstery we achieved an 8.9% margin, and in casegoods our margin was 4.5%. Our ability to operate at these levels even on lower volumes indicates that our core strategy is working and that we have made substantial progress. Going forward, with a leaner cost structure in place we are very well positioned to grow our bottom line at the wholesale level, particularly as volume returns.

Turning to our upholstery operation, for the quarter sales were down 12.5% compared with last year. Our branded business, which is the largest of our companies in this segment, continues to have momentum although it was offset by the results of several of our non branded companies. Our order rate for the quarter was essentially flat against last year's fourth-quarter on a 13 week comparable basis, and because our order rate mirrored our production capabilities we continue to carry a higher than usual backlog.

Our production for the quarter was constrained by two factors, a shortage of trained upholsterers at several of our facilities and persistent fabric issues. On the personnel side we have recently hired a number of upholsterers but because upholstery is a skilled position it takes several months of training to bring individuals up to a level where they can become productive. And with respect to fabric, there are numerous issues impacting the entire industry as domestic manufacturing and supply are dissipating with alarmingly quick speed. And although fabric production is an emerging business and growing rapidly in China, it is not yet to a level where it can absorb the lost U.S. production.

With respect to our operations, fabric disruptions in our fourth-quarter limited our ability to produce all of our orders. We believe there will be continued ebb and flow in the fabric industry and as the U.S. domestic fabric companies continue to reposition their business model, we are taking a hard look at global sourcing and fabric procurement. Accordingly last month we promoted our CIO, Otis Sawyer to the newly created position of Senior Vice President Corporate Operations where he will have responsibility for IT, transportation and logistics and corporate fabric procurement. We also strengthened our entire fabric procurement team and hired higher to Mark Hellwig who has extensive experience in supply chain management and was most recently Vice President of supply chain at Quaker Fabrics. Going forward, we will continue to drive our margins through a variety of means including the continued increase in global sourcing integration, the ongoing conversion of our production facilities to sell your manufacturing, the growth of existing and new channels of distribution and importantly the expansion of our La-Z-Boy Furniture Gallery store system to the new generation format which we will provide for both topline growth and margin expansion.

While outside macroeconomic factors are what they are and beyond our control, we have kept our focus on what we can control, our operating efficiencies and our performance. With a leaner cost structure in place and the most powerful brand in the furniture business we have every expectation that we will be able to maintain our upholstery operating margins in the 8% to 10% range on an annual basis barring any unforeseen events.

Now let's turn our attention to the casegoods segment. On a comparable 13 week basis our sales were essentially flat, and our operating margin was 4.5%. On the residential side of our business our transition to the import model is complete, and the success of that platform is evident in our numbers. Our Hospitality Company, America of Martinsville continues to enjoy the rebound in its sector and with a concurrent increase in sales and backlog its margins are improving nicely.

We believe that as we grow our topline and further pare down costs we will move our performance beyond our operating margin target range of 4% to 6%. In addition to expanding our channels of distribution, we are also working to introduce new product lines to broaden our appeal to consumers and revamping our marketing. On the cost side we are focused on SKU management discipline and are identifying further opportunities to consolidate back office operations. Our transition to the import model was a long and difficult process, and with it behind us now we can look to the future with a shift in our concentration. With a competitive operating platform in place we are now able to focus on growing our business and increasing our operating margins.

Now I will turn the discussion to our retail operation where we posted a significant loss for the quarter on sales of $54 million. The operating issues continue to be primarily related to the markets we purchased last year but were also the result of a challenging retail environment. I realize many of you question our involvement in this business and are interested in our projected timetable for making it profitable. First let's address our rationale for retail. With the marketplace being as dynamic as it is, we believe retail will play a significant role in the future of our company. The time it is taking to build the business is longer than we would like but it will deliver results once it is completed and will significantly change the earnings power of our company. On its own we project our retail operation will turn a 3% to 5% operating margin as our more mature markets perform at that level today.

But it is more than just a retail business. It is a business that has great synergistic value to our higher margin wholesale business. One of the keys to making our retail operation profitable is building out the markets we acquired at the end of fiscal '05. As a reminder these are vibrant markets with excellent demographics, where for one reason or another the dealers in each did not have the capital or ability to grow the business to achieve the adequate market penetration markets of this size require.

Additionally, real estate was another factor as these markets had stores that were too small, in the old format and in the wrong locations. Essentially our dealers weren't tapping the potential of each market. We spent much of last year securing real estate locations and frankly that process took longer than anticipated. With a good deal of that work behind us our program to open new stores and relocate others this fiscal year is aggressive. Critical mass not only gives us volume and grows the top line, but we can spread our fixed costs over that volume and improve the bottom line.

Additionally over the next nine months or so we will consolidate 12 smaller warehouses down to four major facilities, and we will scale back some of our reach by exiting a few smaller markets.

Another significant difference this fiscal year will be the number of stores we plan to have in the new generation format. Right now we only have 28 of the 63 corporately owned stores in the new format. By the end of this fiscal year we will have 46 and that will make a meaningful difference as new generation stores not only enjoy greater sales due to their size, but they also generate approximately 20% to 25% more revenue per square foot.

Our total store system remains healthy, and we have an aggressive buildout in fiscal '07. In the fourth quarter the system opened five new stores, relocated or remodeled five and closed four, bringing the total store count to 337 of which 154 are in the new format. This is significant progress. In less than five years we have changed almost 50% of our stores to the new format giving them a fresh face and feel. For the full year 49 new format stores were added, about half new and half remodeled -- excuse me -- about half of them were new, and half were either remodels or relocations. For our company-owned store program we will add seven new stores, and we will remodel or relocate 11 stores in fiscal '07. We expect it will take approximately 18 to 24 months to break even at retail. However, we would anticipate making significant incremental progress in the back half of fiscal '07 in several of our larger markets where we are further along in our buildout and we can complete some of our consolidation efforts.

Now moving to the balance sheet. We generated strong cash flow and reduced our debt by $26 million this quarter and $43 million for the year. At 26.5%, down from 30% just last year, our debt to capitalization ratio now stands within our targeted range. With a continued focus on working capital, cash flow generated from working capital was improved by over $71 million compared to last year. Additionally in May we increased our quarterly dividend to $0.12, a 9% increase, and will pay our 140th consecutive dividend. We did not repurchase shares this quarter and have 5.9 million shares remaining in our program.

Going forward we will continue to be opportunistic in the repurchasing of our shares. For fiscal '07 we expect our capital expenditures to be approximately $25 to $28 million and appreciation to be roughly in the range of $30 to $33 million.

Before moving to our guidance I would like to spend some time talking about the people side of our organization. As we continue the repositioning of La-Z-Boy we are fortunate to be able to attract and retain excellent people. Both to our Board of Directors and to our management team and we have experienced a number of recent changes. First I will take this opportunity to thank Patrick Norton, our Chairman and David Risley our Chief Financial Officer, who have both announced their plans for retirement. Pat, as you all well know is an industry icon and contributed greatly to our Company, building it from $150 million in sales in 1981 to over $2 billion. His mark will be felt for many years to come, and he has been an inspiration to all of us. As we stated in our press release on Friday, the Board appointed Pat Chairman Emeritus, a nonvoting member of the Board upon his retirement in August. Also at that time the Board will elect a new Chairman.

David made a significant contribution to our Company during the last five years by completely transforming our financial structure, building a strong finance and accounting team and playing a pivotal role in formulating the basis of our new strategy. It has been an honor and privilege to have worked with him and I'm sure you will all join me in wishing Pat and David the best in their retirements.

Last month we also announced that the Board of Directors elected Dick Gabrys to fill the seat left by Helen Petrauskas who passed away in March. Dick, who was previously Vice Chairman of Deloitte & Touche is an excellent addition to our Board as he brings with him financial expertise and a wealth of international experience in various industries that have undergone a significant amount of change. And yesterday we announced that our Board nominated Nido Qubein for a term of three years beginning in August of '06. Nido, who is currently President of High Point University is a highly accomplished businessman who sits on the boards of a number of companies, including BB&T and is Chairman of the Harvest Bread Company. We are delighted Nido accepted the nomination and know he will make a significant contribution to our Company.

We have also made some additional changes in our organization. First, we designated Mike Riccio to succeed Dave Risley as CFO. Mike who has worked in the furniture industry for 16 years, has been our Corporate Controller for the last four and was previously with LADD Furniture. The succession planning and increased focus for our Company Mike will easily make the transition to his new role. To succeed Mike we have hired Mark Copping as VP, Corporate Controller and Chief Accounting Officer. Mark was most recently VP and Controller of Agrium, Inc. and before that he was the CFO for Blue Bird Corporation.

And finally on the branded side of our business we strengthen our structure through a reorganization of our sales, marketing and merchandising teams and have put in place a young and talented group of professionals who know our target customer and will be responsible for positioning us in a challenging business environment. With these changes in place our organization is well positioned to grow and meet the opportunities and challenges ahead.

And now finally looking ahead to our first quarter of fiscal '07. Over the last two quarters we have made substantial progress in our operating performance and are confident that our business model, brand strength and solid cost structure will take us well into the future. That said, due to seasonal factors, our first quarter is typically our weakest, and we continue to be concerned about the overall macroeconomic environment with gas prices remaining high and interest rates continuing to increase. Additionally, unlike the first calendar quarter, April and May have been weaker at the retail level. Therefore, we anticipate sales for the first quarter to be flat compared with last year and reported earnings will be in the range of $0.01 to $0.05 which will include up to $0.02 per share charge to the expense stock options.

We would like to thank all of you for listening and joining our call today, and I will turn things back over to Mark to begin the question-and-answer period.

Thanks, Kurt. We will begin the question-and-answer period now and I would ask that you again please limit yourself to one question at a time so everyone has a chance to ask a question, and Dana if you could quickly review the instructions again for getting in the queue to ask questions that will be helpful. Thank you.

(OPERATOR INSTRUCTIONS) And also as a reminder, ladies and gentlemen, to access the replay of this conference which will be available this afternoon please dial for domestic U.S. parties, 877-660-6853 and for international parties 201-612-7415. Please use account number 286 and conference ID number 203066 when prompted.

Our first question is coming from Todd Schwartzman, Sidoti & Co. Your line is live for question or comment, sir.

Good morning, gentlemen. Of the $4.8 million increase in operating losses at the retail segment in Q4, how much of that was due to the stores acquired recently?

Todd, we don't go into that kind of a detail. I would say that was a portion of it. The softening of retail particularly in April was a portion of it, and during the quarter we were in the process of closing out four or five stores, running going out of business sales, moving some merchandise through, so all three of those factors had an impact. It would not be fair to put the entire impact on the new acquisitions. Obviously they played a significant role, but we are not going to get into that level of detail and break out the differentials but they were really all three of those factors that played a role.

And as far as building out the key markets, can I get you to talk a little bit about which markets, for example, might be the easiest to attain the operating leverage you want and which might take a little bit longer?

We tried to answer that question before and let me try to give you some perspective. We have a fairly mature store program in the Washington, D.C., Baltimore markets, and that has been our best performing market for us for some time, and we're getting very close in both Chicago and Philadelphia to a mature position to where we have the operating leverage we need. Probably the two markets that have the longer timeline than those would be our Connecticut, New York markets and our Boston markets where we got started much later than we have in the other three majors.

Okay, and the last thing is I just want to clarify your guidance for Q4, the 26 to 32 number, that took into account of course the difference in the number of weeks in the quarter versus last year, correct?

Yes, it did.

Okay. Thanks much.

Margaret Whelan, UBS.

Good morning, guys. The sales trends during the quarter, how you how do you go from flat to being down 10%?

The sales -- well, our guidance Margaret, if I understand the question, was to be flat on a comparable 13 week period, not 14. And so in a quarter the one extra week is about 7, 7.5%. So we were 2.5 percentage points below our flat guidance, and the majority of that was some of the production issues that I discussed because our incoming order rate was actually slightly better than a year ago.

So if your incoming order rate was better than your backlog should be a little higher, right?

It is.

Then why the big deceleration and the kind of slowdown in the margins?

I'm not -- I didn't understand your question.

Well, the backlog is above-average going into the quarter, and I guess what you're saying is the traffic has fallen off significantly?

Yes, we have seen a distinct difference in April and May than we saw January through March, and while we have a larger backlog, we are just cautious about what June and July could bring.

So right now you are just kind of being cautious as opposed to what you know for sure. How many weeks of backlog do you have?

Well, we have -- the business that has the extra backlog is our branded business. Most of our other companies don't have an extended backlog and are not much of a change from where they were a year ago. And we would expect because of the changes we've made the number of upholsterers we've hired we would expect to be in a normal backlog position by the end of the quarter.

I got it. A second question I have is just your reference to higher energy costs hurting your disposable income, but how your gross margin was actually pretty good this quarter. How are you managing the costs?

We've put a very strong focus, Margaret, on our cost side of our business and some of the plant rationalizations, some of the integration of global sourcing, looking at new methods, reengineering of products. We looked at the horizon a year or so ago and felt things were going to be difficult, and we've made throughout our whole organization a concentrated effort to get our cost more in line and there is still more work to do there but we have made good progress in the last 12 months.

Okay. Thanks, guys.

Budd Bugatch, Raymond James.

Thank you very much. That is always a thrill to see how the name gets pronounced. Good morning Mark, good morning Pat. First of all congratulations and thank you, Pat, for all your service to the industry and congratulations to you on retirement and best wishes to you and to David. Just a couple of questions, Kurt, trying to go a little bit on what Todd and somewhat on what Margaret was asking and I thank you for the segmentation you do. That is very helpful. But of course we always want a little bit more if we can see into it. And in each of the segments there is kind of the good situation going on and the not so good situation going on as Todd alluded to. In retail and the upholstered you got the branded business which I would think would be significantly higher in margin and perhaps even in revenue performance this quarter than the nonbranded. In the casegoods you've got -- you did call out to what was going on in Hospitality. How should we think about that? What is the ongoing rate, and how do we get there and what can we do to build a model more rationally?

Budd, I don't know about -- I think your summarization of the good and the bad in each of our segments is fairly right on target. I'm not sure about building your model. We've tried to give our best guess as to what the operating margins will be by segment and certainly when you come to an average you have some companies performing above that and some below that. But to give any further clarification of that I think would be difficult for us and truly not any more meaningful than the fact that we are comfortable that our operating margin ranges on an annual basis can be obtained in our wholesale business and the heavy lifting we have to do still remains in our retail business.

And any quantification of the delta between the two or the differences between the good and the not so good, or is there any way we can get that?

I appreciated your comment on us giving you all the information in the segments, but I don't know that we want to go any farther than that.

Okay and just my last question is to Margaret's question on the cost side on the SG&A side, how much of the differential or what was the composition of SG&A this year versus last year on the fourth quarter versus maybe retail versus the wholesale businesses? Can you kind of give us some lead on that? I would have thought that would have been one of the reasons why you didn't see much change in the SG&A side.

I think you asked me more than one question there, I am trying to follow that. One of the problems you have in comparing fourth quarter to fourth quarter is you have that extra week, and the dollars sometimes don't always equate equally in those kind of comparisons. But both our margins and our SG&A are going up slightly because retail plays a larger role in our overall company each quarter. So because the retail and the wholesale business are inherently different models, the blend of that is different. But I would reiterate what I said to Margaret, there was substantial work done on the cost side last year, and that is one of the driving points that helps our overall gross margin improve to the degree it has.

All right. Thank you very much. Good luck on this quarter.

Ivy Zelman, Credit Suisse.

It's McGill in for Ivy. Just quickly, Kurt on the comment you made on the new stores, the new generation stores being much stronger from a sales standpoint, is that still the case a year or two after the grand opening? Are they able to hold that momentum?

Well, Dennis, we do get the initial lift, and they do frankly the peak of what we have seen recently -- the peak of a store's maturation is usually in the second or third year. But I don't want that to be misunderstood. We don't get 25% the first year then get 25% the second and the third but yes, they are able to get 20%, 25% in the first year and maybe in the second year even get another 5% top of that, and then it kind of levels out. But the second year normally because of the changes with staff and things of that nature that is when they really reach their best performing years.

I simply looked at it on a comp store basis; is it fair to say that the next generation stores in aggregate have better comp sales than the non-formatted stores?

Absolutely.

And then just one follow-up question on the topline, if you kind of assume the economy continues to grow at the rate it has been at the last year or so, when do you think you can start to look at some positive comps versus bouncing around that flattish type range the last year or two?

Dennis, that is a very good question, and when we did our planning for the year and our modeling, we didn't build in a whole lot of upside this year because we saw some things on the horizon with the economy that concerned us, and we want to put the pressure on the organization to improve our operating performance even if the volume is flat. I would say, however, that modeling us going forward that there would be a significant change perhaps in the second quarter next year or of this year in '07 because last year we had the phone problems and kind of a disastrous October. And so we would see that meaningfully different but that is more of a one-off thing than it is demand at retail changing significantly.

Before I let you go can I get you to talk about maybe what that spread between the next generation and the older format stores are?

The spread of same stores?

Yes.

No, I think again we are giving the information we have on a systemwide basis and to break it out further than that and because in some of the cases -- the other meaningful number is a lot of the stores when they get relocated and all they are getting a lift from both the new location and the new format. And to say it is exactly same store wouldn't be appropriate. So we probably just want to stick with the numbers on the system overall.

Fair enough. Thanks a lot.

(OPERATOR INSTRUCTIONS) Joel Havard, BB&T Capital Markets.

Good morning, guys. Again, congratulations and best of luck to Pat and Dave. Hopefully we will see you all this summer. Kurt, one question. Could you go back over some of those initiatives you discussed that were more internal and would be more in effect on sort of the corporate overhead line? You mentioned I think four DC consolidations -- I think you had a couple of other points with that.

Well, I spoke primarily, Joe, about our retail business, and I think conceptually what we are trying to get across is we got ourselves involved in these retail businesses through a number of different, because of a number of different changes, and essentially we have eight individual markets operating as individual operations. And what we're trying to do is change our operating platform to operate them as a chain. So we have a lot of duplication going on right now in cost and people and all to operate the business the way it is today, and going forward I talked about us consolidating systems. I talk about us consolidating 12 warehouses down to 4. We are using a denominal delivery service, which is comparable to what a lot of other retailers are using, and we need to leverage our volume over less fixed cost and that is what we're going to be working on diligently here in the first half of the year to right size this organization to meet its volume levels.

I must have understood; so this consolidation was related to the retail delivery network, not to the intraplant national delivery footprint?

No, no. For the most part, Joel, we have one large casegoods warehouse servicing multiple brands but the rest of our warehouses are on the backside of our plants. We only stage a couple of days of furniture and then ship it, so we don't have large distribution centers on the wholesale side. We just have too many distribution centers on the retail side and we are about the process of fixing that.

And then if I could ask this follow-up as that sort of excludes the corporate overhead line, that number was up a little bit here Q4 versus the rest of the year. Is there some opportunity to take that overall number back down to sort of the fiscal '03 '04 level, kind of back down to the lower 20s where you're more in the 30-ish range now? Os is that kind of a function of normal inflation?

I guess I'm not sure I am tracking with your question, Joel. Are you talking about the corporate and other line?

Yes.

In that part of the equation is where our VIEs are and so that would make a difference, as well. And ebbs and flows based on some of the things that they are doing. But on a net basis our corporate overhead has actually been going down, not up.

Okay, all right.

And there are some things that come in and out of there on a quarterly basis and perhaps some unusual things at times, but nothing that we are not adding overhead at all anywhere in our organization today given the environment.

Good, good. The last thing, just going back to your original statement, what is the weekly breakout for the 4 quarters in this fiscal year?

We have thirteen weeks in each quarter this year.

Just 13 each, all right.

We won't face this 14 week for another six years so, we enjoy the year we get it, but we don't like the year we are up against the comparative.

All right, guys. Thanks. Good luck.

Laura Champine, Morgan Keegan.

Thank you for the 1.7% March quarter number for the same-store sales. Can you update us on what same-store sales trends were in April and May?

Well, we've been giving quarterly results on our retail businesses, our retail system, and we really don't have May's results in yet. There's about a 10 or 15 day lag after the end of the month before we get all those from all of our independent dealers. But we don't have a number to give, but we have made the commentary and directional comments that it was weaker than the January through March period, and I think we would prefer to just leave it at that.

Can you comment on whether May weakened from April with the data that you currently have?

I don't have enough data to make that judgment, Laura. So no, I can't specifically answer that.

Okay. Thank you.

Robert Rodriguez, First Pacific Advisors.

Just following up on the last question, can you give us a little bit more granularity regarding the sales trends? Was this weakness pervasive across the system, or was it regionalized to a particular area or even down even to plants? Thanks a lot.

I guess, Robert, the only -- the more detail that we could give directionally on that would be I think in the Midwest and perhaps more specifically, any of those communities who rely pretty heavily on the auto industry we are seeing a worse than average performance in those communities, and we've also seen some softness in Florida compared to the rest of the country. Probably our West Coast business is slightly better than the rest of the country, but that would be the degree of detail we would have on that. And that would be not only our own system stores, the La-Z-Boy Furniture Galleries stores but it would also be retail in general. The reports we are getting in interfacing with our customers, the Midwest, the towns where there are some reliance on auto, Florida are weaker, and the West Coast is a little bit stronger at the present time.

Thank you very much.

John Baugh, Stifel Nicolaus.

That's right up there with Budd's pronouncement.

Have you ever heard about John Smith -- oh, oh, somebody is off.

I think John got cut off. Where's the operator? I think we are cut off.

Hello?

(OPERATOR INSTRUCTIONS)

First of all, David and Pat, congratulations, enjoy your retirement. The question I have is really I guess more strategy in casegoods related. You had a flat quarter overall, but I guess that implies that residential was down since AOM I'm sure was up. Any update on your thoughts, your tests with trying a La-Z-Boy brand casegoods and thoughts about consolidating further some of the brands in casegoods, Kurt?

Well, John, we continue to look at a lot of different ideas and at times do some tests. We don't comment too much on some of those tests until we are sure of the results. We have opened a couple of La-Z-Boy stores with a casegoods complement of products to see whether or not serving the whole home with one of our stores as opposed to the living room, family room is the right direction for us. That would take our store program on a whole different direction and certainly we are going to be moving in that direction cautiously to make sure it is the right thing because we do have a healthy system today and to solve one problem we don't want to create another. So we're doing some work there and trying to tweak the model a little bit. But we have just completed the transformation of this business to an import model. We had our last company Pennsylvania House complete the transition in December. And we think there is opportunity with the focus now being on the front side of the business instead of the backside of the business we think there is opportunity to do some things that we haven't had the resources or time to do the past couple of years.

Is there any division though or brand in particular regardless of what you do with the La-Z-Boy brand casegoods that looks like it could be consolidated, represent some savings going forward, or you just got all the fixed costs out basically with the import model anyway?

I think your latter assessment is probably the more accurate one. I'm sure there are a few some back office things yet that we're going to be looking at and analyzing and accomplishing, but truly the focus is now on the volume. We've got our costs where they are, and incremental gain on a pickup of volume is pretty substantial. So we want to get the focus on the top line instead of the cost side because that is where our focus has been the last two years.

Thank you.

Gentlemen, we have no further questions in queue at this time.

Great. Thank you, Dana.

Thank you, ladies and gentlemen, for your participation in this morning's teleconference. You may disconnect your lines at this time.