La-Z-Boy Inc (LZB) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the La-Z-Boy FY14 third-quarter conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce Ms. Kathy Liebmann, Director of Investor Relations of La-Z-Boy Incorporated. Ms. Liebmann, you may now begin.

Thank you, Kristine. Good morning, and thank you for joining us to discuss our FY14 third-quarter results.

With us today are Kurt Darrow, La-Z-Boy's Chairman, President, and Chief Executive Officer, and Mike Riccio, our Chief Financial Officer. Kurt will begin today's call, and then Mike will speak about the financials, before turning the call back to Kurt for his concluding remarks. We will then open the call to questions.

A telephone replay of the call will be available for one week, beginning this afternoon. These regular quarterly investor conference calls are one of La-Z-Boy's primary vehicles 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 remarks. 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 Kurt Darrow, La-Z-Boy's Chairman, President, and Chief Executive Officer. Kurt?

Thank you, Kathy, and good morning, everyone, and thanks for joining us this morning. Yesterday afternoon, we reported our third-quarter results for FY14.

We continue to be pleased with the direction of our business. We are making steady progress with the ongoing execution of our strategic initiatives to drive growth and profitability.

We have an excellent structure in place. A strong brand, a vast network of almost 900 branded distribution outlets through the La-Z-Boy Furniture Galleries stores and Comfort Studio outlets.

A lean and efficient manufacturing platform with supply chain opportunities, a plan to build out and further penetrate the North American market with La-Z-Boy stores. Strong advertising, marketing, and merchandising strategies, while having the potential for international expansion.

Although weather played a role in our results for the third quarter, we believe there's been no fundamental change in the cadence of our business. For the period, we posted a same-store written sales increase for the La-Z-Boy Furniture Galleries stores of 3.6%. We increased our overall sales and operating income for the quarter, and generated more than $30 million in cash from operating activities.

Now let me take a few minutes to review our three business segments. First, wholesale upholstery. On the 3.4% increase in sales, we increased our operating margin to 11.3% from 10.3% in last year's third quarter.

Although we posted a smaller sales increased this quarter, than we both planned for and have experienced in the recent past, our efficient manufacturing structure allowed us to improve our margins. With respect to our mix of products, stationary upholstery continued to grow at a solid pace, ahead of recliners, although our recliner sales continued to grow and were particularly strong during the period. Our power offerings has also maintained its growth momentum.

We remain committed to investing in our Live Life Comfortably campaign, and have continued to increase our advertising spend. The campaign has proven effective in expanding our base of consumers and their perception of La-Z-Boy as a Company, offering a broad array of stylish on-trend furniture with good value.

Our Urban Attitudes collection, introduced at the October Furniture Market, began to reach floors this month, and we expect stores to receive the full line by the end of the fourth quarter. We are very excited about the potential of this new collection.

Further, it dovetails nicely in our advertising campaign, where consumers hear Brooke Shields, our brand ambassador talking about design, style, and comfort, among other attributes of the brand and store experience. The collection was very well received at market by our dealers, and it is targeted at both a younger consumer, and those who live in smaller spaces, such as apartments and condominiums.

With respect to our stores, we are working diligently on the execution of our 4-4-5 store growth strategy, where our objective is to reach 400 stores throughout North America, averaging $4 million in revenue per store, in a five-year time frame. Because we have enjoyed market share gains and consistent same-store sales increases over the past several years, we are confident in our view that moving more distribution through the branded channel is the correct strategy to drive growth.

Our team has identified the geographic locations throughout North America where pockets exist for more stores, either in dark or underpenetrated markets. The store build-out program will be a joint initiative between the Company and our independent dealers, who have also experienced a robust period of growth, and are anxious to build on the ongoing momentum in their respective markets.

When completed in five years, we anticipate the Company will own approximately 40% of the La-Z-Boy Furniture Galleries stores, up from 32% today. We expect to finish this fiscal year with 20 to 25 projects completed, including new stores, relocation, and remodels, and have 30 to 35 projects slated for FY15.

As we mentioned last quarter, I'd like to now spend a few moments giving perspective on the performance of our three different La-Z-Boy Furniture Gallery store formats. First, our new concept design store, which was introduced in 2011.

Today, we have 26 stores in this format, and all La-Z-Boy Furniture Galleries stores going forward will be in this new design concept. For calendar year 2013, these stores performed at an average of $4.5 million in revenue.

Second, we have the new generation format, introduced in 2000, with the first store opening in 2001. For the past decade, these stores have been the mainstay of our network, and are performing well.

On average, they are generating $4 million in revenue per year. Today, we have about 230 of the new generation formats, and they will be converted to the new concept design format over a longer period of time, based on their age, performance, lease expiration, and other factors.

And finally, we have the old generation format. These stores are at least 15 years old, and all are in the process of being relocated, remodeled, or closed.

This is a high priority for us, since they are performing at the low end of the scale, averaging about $3.1 million in revenue per store and do not properly represent the brand promised to the consumer. We would expect the majority of these stores to be addressed over the next three years.

We believe we have the opportunity through the 4-4-5 store build-out program to grow our business substantially. In addition to revenue growth, we will drive profitability, as we leverage our fixed cost structure throughout our manufacturing facilities, with the additional volume generated by the new stores, and the sales lift we plan for the existing stores.

And finally, a few comments up on our Bauhaus announcement. Last week we signed an agreement to sell Bauhaus USA, the smallest of our three operating companies within our upholstery segment. We are selling it to an investor group led by Britt Allred, the President of Bauhaus, and this group will provide important continuity to all its customers, as the company transitions to new ownership.

From our perspective, Bauhaus is not a long-term strategic fit for us in terms of its revenues and earnings, and we believe our resources will be better spent focusing on growth through our integrated retail strategy. We wish the new ownership going forward and Bauhaus employees all the best in the future.

Now, let me spend a few minutes on casegoods. Our casegoods segment continues to be challenged, but business industry-wide has been the slowest to recover, primarily because of the purchasing of that product is primarily tied to housing.

Additionally, large room groups are typically associated with a higher ticket, and finally, consumers are decorating their homes with a more casual flair. To address this, our casegoods companies have been going through a product refresh, and are about halfway through the process including new collections that are more transitional and stylish, and we believe we are moving in the right direction with respect to our product offering.

While the occasional business continues to exhibit strength, the lower ticket associated with the one-off smaller pieces makes it difficult to comment on the declines we are seeing in our other major product categories. As I mentioned last quarter, we did introduce a new Direct Container program in October, where our customers will be able to mix products of American Drew, Kincaid, and Lea together on the same container.

We expect this to appeal to smaller dealers. At the same time the program will shorten delivery times, while improving freight rates, particularly to the West Coast. And we believe this will assist us in building a new base of business in that region.

For the quarter, on a significant decline in sales, we essentially broke even in the casegoods segment, reflecting the high variable cost structure of the business. Our team is making numerous changes across this segment, and we believe these adjustments, including the new product line-up, will deliver improved results going forward.

And now, our retail business. Our retail segment continues to make progress. But this quarter, with a good number of our Company-owned stores located in the Northeast and Midwest, its results were impacted by challenging weather conditions, particularly in January. With the bitter cold and numerous snowstorms, the consumer simply was not out shopping.

Furthermore, it was difficult to make deliveries due to road conditions, and in many cases, the consumer rescheduling her delivery dates. Sales in the retail segment for the quarter were up 10.2% over last year's comparable period, but on a core base of the 90 stores included in last year's third quarter, sales for this segment increased 2.3%. The stores experienced an improvement in conversion during the quarter, on slightly down traffic.

We also acquired two stores in Ohio and opened a store in Buffalo that was previously owned and operated by an independent dealer. We also acquired three stores in the Las Vegas market in the latter part of the second quarter. Taking on these six stores required operating and other associated start-up costs, and this further impacted our profitability in this segment for the quarter.

Before turning the call over to Mike, I would to provide some additional color on the same-store sales for the entire network of La-Z-Boy Furniture Galleries stores during the quarter. We normally do not provide monthly same-store sales data, but we are offering some perspective as to the impacts the weather had on our pace of business.

In November, our same-store sales for the network were up 9.5%, and in January same-store sales for the La-Z-Boy Furniture Galleries network of stores were down 1.5%. We also experienced in January a wider than normal variation in store performance, based on geographic locations. I will now turn over the call to Mike to go through our financial report.

Thank you, Kurt. Consolidated sales for the FY14 third quarter were $350 million, up 3% compared with last year's third quarter. Consolidated operating income increased to $25.4 million, from $22.8 million in the FY13 third quarter.

The Company reported net income from continuing operations attributable to La-Z-Boy Incorporated of $17.2 million, or $0.32 per diluted share. Compared with last year's third-quarter results of $16.8 million, or $0.31 per diluted share. Which included $0.04 relating to gains on the sales investments, and a related tax benefit.

As a result of our announced plans to sell Bauhaus, all numbers reported reflect the treatment of Bauhaus as a discontinued operation. Therefore, its $9.1 million in sales for the third quarter of FY14 and it's $8.9 million in sales for the third quarter of FY13 are not reported in the net sales line item. Rather, sales and operating results for Bauhaus are included in the income loss from discontinued operations.

The upholstery segment sales reflect these same adjustments for the quarter. You will find more details about Bauhaus in Note 14 of the 10-Q filed last night. For the period, our operating margin increased to 7.3% from 6.7% in last year's third quarter, and our gross margin improved 1.9 percentage points in the third quarter, compared to the prior-year period.

Now, let me turn to SG&A. Incentive compensation costs were $3.8 million higher than in the third quarter of FY13, an increase of 1 percentage point.

This was the result of our improved consolidated financial results, and the increase in our stock price for the quarter, as several of our share-based compensation awards are liability-based awards and/or performance-based awards. And their cumulative expense to date is adjusted at the end of each quarter, based on the share price from the last date of the reporting period, and the level of awards expected to vest.

Turning to the balance sheet, during the quarter, we generated $30 million in cash from operating activities, and ended the quarter with $140 million in cash and cash equivalents, $38 million in investments to enhance returns on our cash, and $13 million in restricted cash. We used cash during the quarter to pay our $0.06 per share dividend, and we also purchased approximately 200,000 shares of stock in the open market under our existing authorized share purchase program, and have 3.3 million shares remaining in the program. We plan to continue to be opportunistic in the market with respect to buyback opportunities.

Capital expenditures year-to-date were $23.1 million, compared with $21.8 million for the first nine months of FY13. We expect CapEx for the FY14 fourth-quarter to be in the range of $13 million to $17 million, reflecting costs associated with the construction of our new world headquarters, new stores, transportation and equipment, routine maintenance, and ongoing costs related to our ERP implementation.

And lastly, our effective tax rate for the first nine months of FY14 was 33.5% compared with 34.6% for the first nine months of FY13. Our rate for the first nine months of FY14 was impacted by certain discrete adjustments.

The second quarter of FY14 includes a tax benefit of $900,000, for the release of valuation allowances relating to US state deferred tax assets. The third quarter includes a favorable tax adjustment of $200,000, primarily from changes to deferred taxes, as a result of Mexico tax rate increases. Absent discrete adjustments, the effective tax rate for the first nine months of FY14 would have been 35%.

We are expecting our full-year tax rate from continuing operations to be about 36%, excluding discrete items. The reason for the increase in the tax rate next quarter is the expected exercise or vesting of stock compensation in the fourth quarter, which will reduce some permanent differences, therefore increasing our overall effective tax rate. And now, I'll turn the call back to Kurt for his concluding remarks.

Thank you, Mike. In closing, we believe we are well-positioned to grow profitably. We are continuing to strengthen our integrated retail platform, and are progressing with our store build-out strategy.

We will be making ongoing investments in our Company, with the focus on the long-term growth, profitability, and returning value to our shareholders. We thank you for being on the call this morning, and I will turn things back to Kathy for the Q&A.

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

(Operator Instructions)

Brad Thomas, KeyBanc Capital Markets.

Let me thank you for all the detailed commentary that you provided this morning. I wanted to just first start with just a couple quick questions on the cadence of business, and how to think about your April quarter.

Kurt, you mentioned that in the month of January there was a very wide dispersion in the results. Can you maybe give us a sense of how it things held up in some of the better markets, and is it fair to assume that perhaps the President's Day weekend and February has continued to be the same way as January was?

Well, a couple of comments there, Brad. Certainly, we had more discrepancy of performance in January then we have seen in a long time. We had markets, or even states, that were up 10% to 15% during the month of January, and we had some markets in the Midwest and Northeast down as much as 20%.

So it was impactful and the fact that the Company owns the majority of its portfolio in the Midwest and East Coast makes it a little more difficult on us in our overall business. We are looking to open a number of stores in warm weather climates in the next year.

That is helpful.

And your comment -- excuse me, Brad. But your comment on February. It's had its ups and downs, and obviously there was a little weather-related problem on the Monday of Presidents weekend, particularly in the Midwest and Northeast again.

And so as we think about modeling your fourth quarter, and I know you don't normally give quarterly guidance, can you just help us think through how maybe a softer backlog might handicap what your sales could be for this April quarter?

Well, it is hard to determine at this point. I would say in the short term, we have some actual increased backlog from not getting everything delivered in the third quarter because of weather. Both to the retail consumer, and to our dealers.

We had a couple days our plants didn't work full shifts and things of that nature. So there's a short -- probably a short-term backlog flow through that will happen, primarily in February.

But I would fathom to say at least that, and probably more was lost on the written side, and the degree you get to make that up, particularly when they come for holidays and all is going to be a little difficult. So we are watching both, but I don't think there's any way to really tell for sure. But I'm sure whatever gain we have on the delivered in the fourth quarter will be challenged, when we get to April on the written side.

Very helpful. Thank you.

And then just a quick question on the new formats. I appreciate all the color that you provided.

The quick math suggests that your latest format store at $4.5 million is 45% better than your oldest stores at $3.1 million. Can you help us think through what kind of a lift is really reasonable for us to model as you go through and move those stores and upgrade them?

So we haven't done a lot of the old gen remodels yet so I don't know. There may be only one or two in the 26.

And I would say we expect a significant lift with one caveat. Some of the old generations stores are in smaller markets, and they may not get to the average of the new design concept. But they have significant potential from where they are right now.

I would not hazard a guess right now what that would be until we get a few, but obviously you can see the wide disparity of performance, only hampered by the fact -- a few of the stores that are in the old generation format are really in smaller markets, so we wouldn't expect them to get to the average. We would expect them to go up quite a bit.

Well, it seems like a very exciting opportunity nonetheless. Great. Thanks so much. I will turn it over to somebody else.

Budd Bugatch, Raymond James.

Kurt, of the three kinds of stores, I would assume -- I would ask you, how many are Company-owned of the 26 and the 230 of the new concept design and the new generation design?

We will look that up. I don't have it right here in front of me. But we'll -- I'm sure you have more than one question and I will answer that.

Sure. And I assume that none of the old generation are Company-owned -- most likely all the --

I think, Budd, we have a couple that we are waiting for the leases to run out and are either closing them or moving them, so all this is time phased. So here are the numbers that you asked for. The Company has 14 of the 26 new concepts, 77 of the 229, and the new generation, and we have 9 of the old format, which I'm pretty sure at least half of them are going to be addressed this year.

Okay. And that was the next question on that is, what's the cadence of that three-year program? Is it a third, a third, a third, or how you look at that to work out?

Well, year one of this program was really last year, and while we didn't get as many projects completed, we did get a lot teed up, and you can see in our comments that we expect to do significantly more projects next year than we did this year. And so I think the desire and the will is there.

Again, our dealers are being as cautious as we are, as making sure they make the right real estate deal. But there's been more emphasis and more sense of urgency on the old generation stores to get them up to date, so we have a more consistent retail footprint, and I would expect those to be done quite a bit earlier than the before we reach the 400 mark.

Okay. My next question is regarding the start-up costs. If you quantified it, I missed it. And how about going forward? What do we look like over the fourth quarter and into 2014?

So Budd, the start-up costs are -- you have staffing costs, training costs, and grand opening costs, putting in our IT system and all. But if we get a normal cadence going, and with the size of our business, it isn't going to be anything that we would call out and make a big issue out. This one was a little bit unique, in the fact that they were all stores that we acquired and had more work to do to get them on all of our systems, but we plan that in our normal course of business.

Okay. All right. Mike, what was the CapEx again for the fourth quarter and for next year? Did I miss that? Or did I get the number?

The fourth quarter is $13 million to $17 million, and probably about $7 million to $9 million of that will be for the headquarters. The rest will be our normal CapEx, and so that will get us at about $18 million for the building, and we talked about the building being $57 million, $58 million. So we'll spend about $40 million next year on that, so I would gather to say that CapEx would be $35 million to $40 million above our normal depreciation and amortization for next year, because we just didn't spend it all this year, because of some delays in the weather.

And depreciation and amortization are running about $32 million next year? Or $30 million, in that range?

About $24 million, $25 million is what our normal spend.

It has been, but it's been going. Okay. I thought it was going to start to go up.

It probably will start going up once we have the building capitalized, but the ERP system will add some to it, but that's about the cadence of our depreciation and amortization.

So $35 million to $40 million above the $25 million?

Yes, sir.

Okay. Kurt, you gave the November and January numbers. If my math is anywhere right that would have made December just under 1% for a comp?

I can't do the math as fast as you, Budd, but December was better than that. The weight of the months is not equal, so you can't do it linearly, but the month of December was not down. But I've given you all of the monthly sales cadence I'm going to give you this morning.

Okay. And you just wrote on my shoes too. Finally, on Bauhaus, it looks like $1.2 million operate profit swing versus last year, and I know -- I suspect we're not going to get the total restatements until you put the K out after the fourth quarter, but can you give us a little flavor of maybe what we are comparing against in the fourth quarter?

Well, I mean it you can look at -- if you look at the footnote of what they've done year-to-date, the cadence of that business is pretty on target, and that's what it would have been, and it just -- the businesses -- our volume criteria and our profitability criteria -- we've worked hard. It's nobody's -- I am not blaming anybody, but we just could not get the traction we wanted, and we felt there was an opportunity to sell this to some people we had confidence in, so we thought it was a good time to break it out. And the overall sales of the business is not 3% of the Company, so it's not a significant impact.

No, I see the sales, it was a difference in operating profit, at least as the footnote had of about $1.2 million in the nine months from last year to this year. Right? Because it had a profit of $400,000 last year, and a loss so far this year of $800,000?

That is after-tax. So this year, we did have an impairment on the sale, that we had to record from the value of the assets, versus the sale.

That is in the disc ops, Mike?

That is down in disc ops, but it is part of that line item, so if you take out -- if you look at our footnote, we about broke even on operations and the loss this year is pretty much attributable to the impairment.

Okay.

And then last year, they made a little money.

All right. Yes. And they do about $9 million a quarter, as I see it.

All right. Thank you very much. Good luck on the fourth quarter.

John Baugh, Stifel.

Thanks for all the disclosure. A few things. Could you comment on roughly what the cash you might receive from Bauhaus will be when it all gets settled?

You will be the first to know when we get it closed and settled, and we file our 10-K.

Okay. A mention of raw materials and I think it was in the Q, that it was up 0.6%. I am just curious how you are tracking year-to-date, with the pricing you took, versus the raw materials you've experienced, and an outlook on those two variables for Q4 and going into next year.

So John, our forecast was, I think, $11 million to $14 million of raw material increase and while the raw materials are certainly up over the last year, they're not quite at the level that we projected, but there's some indication that they are continuing to have some upward trend next year. We haven't finalized all of our budgets for next year, so I don't have an exact number.

But on the pricing and raw material side, we're in pretty good shape. You have to remember, typically, we always are lagging, so we get the raw material increases before we can get the price increase passed through our backlog, and out to our customers. So there is some timing differences with that, but an annual basis, our crystal ball this year was pretty good, and we don't see any degradation as a result of it.

Great. And then Mike, do you have any guidance for us on comp expense in the fourth quarter? I know you had to predict the stock price.

I guess I would just say, let's assume it's lower than where it ended in January quarter. Are there any other variables to take into account, or how do we think about that number, and comparing to last year? I don't have the fourth quarter in front of me from last year.

That's a good question, John. Our stock price went up $3.89 in the third quarter, so that was not as forecasted, what we had in there, but for the most part, I don't see much of a major change.

It'll be up a little bit because our performance, if you look at our nine months compared to last year, it was up pretty significantly. I don't expect it to be up as much as it was this quarter, unless there's a change in the stock price.

Great.

And that's not very good guidance, but it's the best that I have right now based on where we are at in the quarter.

We've got both factors that you've got to calculate, and we've got various models but you've got the performance factor, and you've got the stock price factor, and depending on what they do, determines what the increase would be.

Understood. Thank you so much, and good luck.

Todd Schwartzman, Sidoti & Company.

Kurt, I missed the beginning of your opening remarks. Did you estimate the amount of lost delivered sales due to weather?

We did not, Todd. Obviously, we mentioned that we planned for more, and certainly I think if we hadn't had the weather issue, it's logical to think there was more -- there would have been more. And then actually the numbers are a little more difficult to interpret, if you don't take in the Bauhaus change and deduct that from both last year and this year.

But it is what it is. We don't sit around and whine about the weather, and why there's nothing you can do about it. But our position would be we have more.

But we tried to give some color at the end of our prepared remarks about the degree of change we had in our written business from November to January, to try to put a box around it. But we would be guessing, if we would try to give you an exact number.

If you were to look at just the so-called good weather markets, how would those break-out in terms of net beat or miss your own expectations for the quarter?

Well, I think the most clarity we can give those for us to be saying that our pace of business has not fundamentally changed. I think you should read between the lines that we've been on a high single-digit, low double-digit same-store sales comparison, and while it's not universal, that's the rate we started out in November, and in the better weather markets there was some weird performance to what happened in November.

I know you had mentioned that some states were up as much as 10% to 15% and others of course were down at least as much, if not more. I'm just trying to get a feel for whether it's just a very small handful of states that are doing heavy lifting, or if it's more diverse than that?

Well, the benefit is that the biggest states in the country are all warm weather states. But the bandwidth that the storm had in the Midwest and the East was pretty significant, in terms of the population base.

So we're just going to have to get to the warm weather months, and sort it out. But I think we've done our best, Todd, to give you as much information as we are comfortable giving you at the time.

Sure. Understood. You updated your store opening roadmap. That's helpful. But how would you suggest we think about modeling net change from, let's say today through the end of FY15, either in terms of square footage or perhaps store count?

Well, we have -- we've given you the number of projects, and I think we're close to the point of not closing very many stores, without having a replacement in the works within the same year, or same six months. And I would think our net store count next year should be in the -- somewhere between 10 and 15 at the present time.

But again, finding the right real estate, the timing of getting these projects done, it's hard for us to predict exactly when all these things happen unless they're under construction or under lease at the present time. So we're doing some projecting out, but we feel good and conservative about our projections.

But I think the important thing is we've got some momentum. We've got our entire organization, our independent dealers are just as excited about this growth path, and the opportunities they have in markets they're already in or markets that are adjacent to their core market, that they're being aggressive at pursuing. So we would expect to build continued momentum over the next couple years about the net store count.

Got it. On other gross margin, could you talk, put a little more color perhaps, on the 240 basis point year over year improvement?

Well, I think, as Mike mentioned, it's primarily in our operations. It's primarily in the efficiencies with which we are running the business.

We continue to see productivity gains. And we continue to see our lean principles come into play, and identifying ways to be more efficient and reduce costs.

So I have to give a call out to our operations team, about trying to run as an efficient organization as possible. And it furthers our belief that, as we put more volume to our plants, that our profitability is there to be made, because of the way the plants are running today.

Got it. Finally, just philosophically on Bauhaus and just the rationale, I get that it's a line that is distributed by third parties and it's not on the Furniture Galleries floors. But neither are any of your casegoods brands.

So I'm just wondering if you could maybe just address how if Bauhaus was not deemed to be a core operation, how some of the brands like Lea, or Hammary, or Kincaid, et cetera, might be considered vital parts of your long-term vision. What do they bring to the table perhaps, that Bauhaus doesn't?

Is it size, is it rounding out the product portfolio with respect to the distribution channels? Or is it some other factors?

Good question, Todd. And I think there's two phases of this.

One, there is a size and a profitability metric that we feel we have to have, in order to keep companies in our portfolio. And because our experience has been smaller companies take the same amount of effort to work on, to plan for, to audit, and all the things you have to do as larger companies, and there is a diminishing return there.

Second, as I have said repeatedly, some casegoods format for our company is essential, because of its importance to the La-Z-Boy stores. I mean, all the tables, all the occasional pieces, all the accent pieces, and all the bedroom and dining room that are sold in our in-home business, with our designer through all the stores, we need to have product for those programs.

So we didn't sell Bauhaus at all through dedicated distribution. We sell a lot of casegoods through our own dedication, so strategically there's a big difference.

Perfect. Thank you.

(Operator Instructions)

Kristine Koerber, DISCERN.

A few questions. First, just a quick follow-up on the weather and I know you don't want to talk a whole lot about it. But just wondering -- so the states that are in better weather, climate, were the trends consistent throughout the quarter in those particular states?

They're never consistent. Good weather, bad weather, winter, or summer, they're never -- it's hard for us to say that all 22 states performed at the same level. There's -- our independent dealers run different promotions, and do different things, and so there is not a consistency.

I will say that performance of the entire group is tighter aligned during a given month, than it was in January. The big swing from the positive to negative was the most we've seen in a long time in January, but typically there are swings, and not every community has the same unemployment, housing dynamics going on, so it's all over the board.

Okay. And then in the past, when there have been weather-related issues, have you seen pent-up demand come through?

That is hard to quantify. It depends on the time of year, the challenge about the weather this winter is it came right after the new year.

It came on some holidays, as I mentioned, there was some weather impact on Monday of Presidents' Day weekend. So when it comes on dates that are big holidays, it's more impactful than whether it comes on July 20.

So it just -- we are not focused on the weather. We are just trying to give some people some ideas that -- we are looking to the future now. But we thought we would give some color on it, and just to give you some idea of the magnitude of what we saw.

Okay. Fair enough. And then you'd mentioned increased advertising for the holiday period. Do you feel as though you got some sort of return on the increased spending?

So our increased spending was always with an idea that we were going to do more business, and so we've been increasing our spending all along, but our percentage to our total has not moved very much. So every time we have pushed the envelope on increased investment in marketing, we've got a commensurate pay.

Unfortunately some of that was hampered by the weather, and we had some strong after Christmas sales and New Year Day sales and things of that nature, that didn't quite deliver. And the only reason we called it out, it did go up slightly as a percentage of sales for the quarter, but I don't believe that would have happened, had we had a normal weather situation.

Okay. And then, as far as the casegoods business, you indicated that you're halfway through the process, refreshing the assortment. When can we expect the completion? Are we looking sometime next year?

Yes. I think as we move -- as we get two more markets behind us the April market and next October, that takes a while. So I think in calendar 2015, you'll start seeing all this new product refresh out on the retail floors, and we'll get a real read out of the consumer thinks of our change of styling.

Okay. And then just one quick question. I think you mentioned that traffic was down slightly. Is that correct?

Yes.

Okay.

And again, that probably was weather-related as well. But it wasn't down significantly to where it caused us any angst.

Okay. Great. Thank you.

Ms. Liebmann, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you, Kristine. Thank you, everyone, for participating on our call this morning. If you have follow-up questions, please reach out to me, and I will make time on my calendar. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.