La-Z-Boy Inc (LZB) 2015 Q2 法說會逐字稿

Greetings. And welcome to the La-Z-Boy Incorporated second quarter FY15 results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Kathy Liebmann, Director of Investor Relations and Corporate Communications for La-Z-Boy. Thank you, Ms. Liebmann, you may begin.

Thank you, Kevin. Good morning and thank you for joining us to discuss our FY15 second 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. Yesterday afternoon, we reported our second quarter results for FY15. During the quarter, we grew the business, improved our operating performance, made strides in the execution of our 4-4-5 strategy, and returned value to shareholders.

Specifically, we increased sales 3.8% after a 14.9% increase in last year's comparable quarter, increased the consolidated operating margin to 8.3%, achieved an 11% operating margin for the upholstery segment, and a 4.4% operating margin for the retail segment.

Experienced a 3.4% increase in written same-store sales for the La-Z-Boy Furniture Galleries network, added eight new stores across the network, generated $33 million in cash from operations, increased the dividend, and purchased 640,000 shares of our stock.

In summary, from a number of different perspectives, it was a solid quarter overall. I will now take a few minutes to review our three business segments. First, upholstery. For the quarter, sales in the upholstery segment increased 3.6% and, as noted a moment ago, we achieved an 11% operating margin, reflecting the overall efficiencies of our operations.

As we work to deliver long-term, profitable growth, we continue to make investments in the business. During the period, these included the ongoing implementation of a new ERP system and the replacement of our website and eCommerce platforms.

With the digital elements of the consumer's overall purchase process becoming even more important, it is critical we provide a more inspiring, compelling and easy desktop and mobile-site experience. We expect the new website and eCommerce platform to go live in the fourth quarter and we'll finish with the ERP implementation throughout our plants in May.

As we seek to broaden our consumer base, we are excited with the cadence of new product introductions that are composed of sleeker and more stylish pieces. Along these lines, our new Urban Attitudes collection is tracking well with two sofa styles already in our top 10 in less than a year.

And at the October High Point Market, we introduced additional pieces in the Urban Attitudes line and believe the collection has excellent prospects in terms of performance. We are also pleased that our stationary business continues to grow at a faster rate than the growth we are experiencing in our core recliner business, indicating our Live Life Comfortably campaign featuring Brooke Shields is resonating with consumers.

While best known for our motion offering, and with the belief that we have the largest share in that category, for us, the greatest potential for growth is in the stationary sofa market, given it is the largest segment of the upholstery business and where, comparatively, we have a smaller share.

We will continue to invest in the marketing program and plan to develop new commercials to air next spring. The objective of this campaign is to educate consumers about the on-trend product we offer and the attributes of the La-Z-Boy brand, including style and comfort, by highlighting the store experience and the complementary in-home design program.

Additionally, with the power option in motion furniture gaining in popularity, at market, we introduced a new line of power recliners and motion sofas with dual motors that we believe will set us apart in the marketplace.

At the cornerstone of our growth strategy is the build-out of the La-Z-Boy Furniture Galleries store system which we have dubbed 4-4-5, our moniker for 400 stores across North America, averaging $4 million per store over a five-year time horizon. And note, we are in the second fiscal year of this strategy.

For FY15, we plan to execute 30 to 35 projects across the La-Z-Boy Furniture Galleries network including new stores, relocations and remodels. By the end of the year, we plan to have 11 net new stores and we'll also change out 15 old format stores and convert them to the new concept design.

A combined activity will nearly double the number of new stores in the new concept design format over last year's level. As I had mentioned before, these stores are performing at a higher level than the other formats, averaging $4.5 million per store.

At the end of the second quarter, 52 of the 325 stores were in the new concept design and we expect to have about 65 in this format by year end. We have been on a good pace of store projects and, in the third quarter, the network, including the Company as well as independent dealers, plans to complete eight projects consisting of new stores, remodels and relocations.

In addition to increasing volume across the La-Z-Boy Furniture Gallery Network, we have the opportunity to deliver improved profitability as the additional volume inherent in our store growth will allow us to drive greater efficiencies throughout our manufacturing operations, as we leverage the fixed cost structure of our [plants].

For the quarter, written same-store sales for the La-Z-Boy Furniture Gallery network increased 3.4%, following an average of 10.8% over the last three years' second quarter. After three full years of compounded double-digit increases, we did expect the same-store sales growth rate to moderate and we continue to work to drive consumers to our retail outlets and maximize the sales process.

Now let me turn to a brief discussion on our Casegoods segment. Sales in our Casegoods segment were $28.9 million, essentially flat compared with the prior year. The operating margin for the segment was 10.4%, primarily reflecting a reduction to a LIFO reserve, which Mike will speak about in a few minutes. Our product refresh for Kincaid and American Drew continue to be well received by dealers and the written-order rate for the transitional groups introduced over the last 18 months outpace the availability in some cases during the quarter.

Our occasional business with Hammary remains strong. And all three wood companies introduced a compelling and stylish product assortment at the High Point Market. In September, we ceased production at our Hudson, North Carolina manufacturing facility and are in the process of consolidating and transitioning our warehouse from repair functions, which we expect to be complete by the end of the third quarter.

As a result, we are substantially through the restructuring of the Casegoods segment and believe our performance moving forward will improve as we operate 100% import model with a variable cost structure.

Now let me turn to a discussion of our retail segment. Delivered sales in our retail segment increased 15.3% to $84.6 million in the second quarter, compared with last year's comparable period.

On the core base of 88 stores included in last year's period, delivered sales for the segment increased 4.6%. The retail segment posted an operating margin of 4.4%, equal to that of last year's second quarter.

During the period, we opened five stores in the Company-owned retail segment as part of our 4-4-5 store growth initiative and we entered into an agreement to purchase one store in Mishiawaka, Indiana and closed on that transition -- that transaction earlier this month.

As we discussed previously, start-up costs associated with new stores, which include labor, rent, advertising and technology, impact the segment's operating margin. We have said that these costs represent an approximate $250,000 drag in the 90-day period surrounding the actual opening.

For the quarter, with five stores opening, these costs were approximately $1.2 million. We have also said that for the year, based on our new store activity, we believe these costs will equate to an approximate $0.03 per share impact on earnings, related to the Company-owned retail segment. But even with these costs for the quarter, our operating margin was in the mid-single digit range which is our stated annual objective for the segment.

Furthermore, we believe the investments we are making in the business today, to grow our store base, will drive future positive performance for the retail segment as well as the Company overall, as we benefit from the integrated or blended retail wholesale margin. During the quarter, we improved our conversion, ticket count, and units per ticket on lower traffic.

With more consumers using the web for research, they are shopping fewer stores and we believe this is one of the main reasons for the decline in traffic. That said, the consumer entering our stores tend to be more qualified and educated as a result of their online research and the success of our Live Life Comfortably campaign and, as a result, our conversion continues to be positive.

For the third quarter, the Company plans to open two stores, relocate one, remodel one, and close two. These projects were included in the numbers I gave you earlier when speaking about the entire network. I will now turn over the call to Mike to review our financials.

Thank you, Kurt. Consolidated sales for the FY15 second quarter were $366 million, up 3.8% compared with last year's second quarter of $352 million. This year reflects the reclassification of Lea, and last year reflects the reclassification of both Lea and Bahaus to discontinued operations.

For the quarter, consolidated operating income was $30.2 million, compared with $26 million in the FY14 second quarter. The Company reported net income from continuing operations attributable to La-Z-Boy Incorporated of $19.2 million, or $0.36 per diluted share.

This compares with last year's second quarter net income of $17.2 million, or $0.32 per diluted share, which includes a $0.01 per share benefit attributable to the reduction of certain valuation reserves against the Company's state-deferred tax assets.

As noted in our press release, adjusted income from continuing operations, attributable to La-Z-Boy Incorporated, was $0.36 per share in this year's second quarter versus $0.31 per share in last year's second quarter. For the quarter, our consolidated operating margin was 8.3%, compared to 7.4% in last year's comparable quarter.

As Kurt referred to earlier, we had a reduction to our LIFO reserve for domestically-manufactured inventory and this equated to about $0.02 per share. Because we ceased manufacturing at our Hudson facility during the quarter, the stream of domestically manufactured inventory will not be replaced and our LIFO reserve for this inventory was reduced accordingly.

We expect additional reductions in this LIFO reserve over the next several quarters, but no period should have the same significant impact of this quarter. Somewhat offsetting these future reductions will be additional LIFO charges related to the increased inventory in the purchased finished goods pool.

Now let me turn to SG&A. Selling, general, and administrative expenses in the second quarter, as a percentage of sales, decreased by 0.2 percentage points compared with last year's second quarter. Incentive compensation costs were $3.1 million lower for the period.

The main driver of this decrease was a smaller increase in our share price during the second quarter of FY15 compared to the increase in our share price during the second quarter of FY14. Several of our share-based compensation awards are liability-based awards and their cumulative expense to date is adjusted at the end of each quarter, based on the share price on the last day of the reporting period.

In addition, our prior year results were stronger against the incentive-based targets than the current year, contributing to the decrease in compensation costs in the second quarter of FY15, compared to the second quarter of FY14.

Partially offsetting lower incentive compensation was spending for investments during the period including distribution costs, which were mainly associated with our regional distribution center network expansion, as well as technology related to our ERP implementation and the replacement of our web eCommerce platforms.

Turning to the balance sheet. During the quarter, we generated $33 million in cash from operating activities and ended the period with $115 million in cash and cash equivalents, $45 million in investments to enhance returns on our cash, and $5 million in restricted cash.

For the period, we spent $21.2 million in CapEx, paid a $0.06 per share dividend, and purchased 640,000 shares of stock in the open market for $13.6 million under our existing authorized share purchase program. This leaves 6.9 million shares in the program for repurchase and we plan to continue to be opportunistic in the market with respect to buyback activity.

As Kurt noted at the opening of the call, the Board voted to increase the quarterly dividend and, moving forward, it will be $0.08 per share. Of the $21.2 million in capital expenditures for the quarter, about 70% of the spend relates to our new office building.

We anticipate CapEx for FY15 to be in the range of $70 million to $75 million, reflecting costs associated with our new-world headquarters, which will be approximately $44 million of the total, as well as for new stores, transportation and equipment and routine maintenance.

Because we're in the implementation phase of our ERP system, at this time, most of the costs associated with it are being expensed rather than capitalized. For FY16, we expect CapEx to return to more normalized level of about $25 million, roughly mirroring depreciation and amortization.

And lastly, our effective tax rate for continuing operations for the second quarter of FY15 was 35.3%, compared to 32.5% for the second quarter of FY14. Our effective tax rate varies from 35% statutory rate primarily due to state taxes, less the benefit of the US manufacturing deduction and foreign earnings in jurisdictions with lower tax rates than the US.

The effective tax rate was lower than last year's second quarter due to a release of a portion of our valuation allowances relating to our US state-deferred tax assets, resulting in a net tax benefit of $0.9 million. For FY15, we don't expect our effective tax rate to differ substantially from the current rate. Now I'll turn the call back to Kurt for his concluding remarks.

Thank you, Mike. We are making a series of strategic moves and investments to drive profitable growth throughout our three business segments, including our store build, investment in advertising and technology, and initiatives to drive supply chain optimization.

As we've stated in the past, our annual conversion targets on truly incremental volume. Even with these investments, it's 20% to 30%. According to our planning and forecasting, we believe approximately 80% of our volume growth for FY15 will be truly [an] incremental.

The La-Z-Boy brand remains the strongest in the home furnishings industry. Our marketing platform is delivering results and our merchandising efforts have never been stronger. These elements, coupled with an efficient plant structure, will enable us to drive growth and leverage the fixed cost structure in association with our manufacturing facilities.

And, as our Company-owned retail segment continues to grow, the overall enterprise will benefit from the blended wholesale retail margin inherent in our integrated retail strategy. We believe we have an exciting future ahead of us, one where we will drive profitable growth and return value to our shareholders. We thank you for listening to the call this morning and I will turn things back over to Kathy. Thank you.

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

Thank you. At this time we'll be conducting a question-and-answer session.

(Operator Instructions)

Our first question today is coming from Budd Bugatch from Raymond James. Please proceed with your question.

Good morning, Kurt, Mike and Kathy. This is Bobby actually filling in for Budd. Congrats on the quarter and thank you for taking my questions.

Good morning, Bobby.

Just real quick, Kurt, I was wondering if you could provide a little color on how much store start-up costs were in last year's second quarter, so we can get a little bit cleaner year-over-year comparison?

I don't have that number in front of me, Bobby. But I would say that the bulk of our charges for new store start-up was -- had -- will be in this first six months. We'll have a little charge here in the third quarter, because I think we're opening three stores.

There will be little or no effect in the fourth quarter. So for planning out, we've probably utilized a little over $0.02 of the $0.03 that we have told you. But the comparison to last year, I don't have right in front of me.

Okay. Okay. Even in this -- just congrats on the operational efficiency there with the store start-up costs, maintained flat margins. And then secondly, you mentioned commercials as going forward for the spring. How should we think about ad spending as a percentage of sales? That should stay roughly the same or maybe tick up a little bit?

Our philosophy and our strategy has been we continue to up-spend as we have the volume to do that and the volume growth. But our percentage of what we spend on an annual basis hasn't materially changed year over year for the last couple years, even though we have -- we're spending 15%, 20% more as we grow. So our objective is to keep our percentage of advertising consistent and to slide up with the growth.

Okay. And then lastly from me, is it possible to get a little bit of color on the cadence of sales during the quarter? And how things progressed?

There wasn't a huge difference quarter to quarter, Bobby. It was -- the big event in this quarter was Labor Day weekend and that was strong for the industry. And then there was a fall-off after that and then October bounced back pretty well. But there was a 5 or 10 point differentials month to month, but October ended on a good month and we're looking forward to a strong holiday season.

All right. I appreciate that color. And also, Kurt, thank you for the modeling help on the incremental volume. That's very helpful knowing that about 80% of this year's growth will be incremental, and best of luck going forward.

Thank you, Bobby.

Thank you. Our next question today is coming from Todd Schwartzman from Sidoti & Company. Please proceed with your question.

Hi. Good morning, folks.

Good morning, Todd.

I wanted to talk about the op margin on upholstery. You mentioned 11%. It looks like it was down year over year about 40 basis points or so. I was just curious, what gets you higher, what gets you maybe to the teens?

Is there maybe some gross margin upside regarding manufacturing efficiencies, maybe above and beyond cellular or maybe there's some more run rate to come there? Just curious what those factors might be.

Todd, I think the biggest opportunity we have as we continue to grow is to utilize the capacity that we have in our existing facilities. We've stated numerous times the last couple years that we have somewhere between $250 million and $300 million of capacity available in our existing plants.

So if they were making that much more furniture in our plants and absorbing the fixed overhead, I think our margin would be improved. And when I say the capacity, we have the space. We don't have the people. We don't have them trained. We have some other -- we have to build out them ourselves.

But once we moved all of our cut and sew out of our domestic plants to Mexico, it opened up space for future production. From my standpoint, taxing the plant volume-wise with additional sales is the best way for us to improve our margin.

So once that occurs, Kurt, relative to the 11%, relative to the 11.4% of a year ago and maybe you want to assign a value number to go along with it, but where can the margin go?

We're comfortable with the targets we've given on our segments today. In this industry, it's not easy to make a double-digit operating margin, so I don't want us to get too far ahead of ourselves.

But certainly we're always striving for more efficiencies, cost reductions, supply chain optimization. So we're not settling where we're at, but to make a projection on where it could go in the future would be premature.

Got it. And between sofas and recliners and maybe sofas and love seats versus recliners, which has seen the greater penetration thus far of the power component as a percentage of total sales of that particular product category?

We offer power options on chairs and motion sofas and on modulars or sectionals. So we have it on any of our furniture that has a motion component.

For us, the largest penetration has been in chairs, since that's our name sake and that's what we're known for. But we're real pleased with the penetration we've had in the other categories and think this new mechanism that we introduced at market will take up our power percentage even higher.

Is the percentage 50% on recliners or is it something less?

Not yet. It's something less, but it's growing all the time and it's gaining more popularity and I think the potential to get it to that level is within our reach. When we did our research to introduce this, I think the number was closer to 70% of all recliners sold in Europe are powered. And so there's lots of opportunity for growth in that category going forward.

And even domestically, it seems the industry is headed in that direction. You may be the leader, but I would think that competitors offering similar types of platforms is probably -- helps La-Z-Boy at the end of the day.

It does. However, we have a differentiation with our mechanism that has individual back and foot rest power. So all of our power units actually have two motors in it as opposed to one, due to the uniqueness of our mechanism.

And I just -- I've said to people, Todd, if you think about -- I don't know how many years ago, but 25 years ago, you could only get power windows on Cadillacs, and today I don't think you can find a car without power. I think you'll see the same kind of phenomena happen over time with this category.

It's definitely ubiquitous. On the Urban Attitudes, Kurt, you mentioned the two sofas are among your top 10 sellers. Other than that, are there any other surprises, positive or negative, that you'd want to cite, regarding Urban Attitudes?

We're thrilled with the performance to date. We give it a prominent positioning inside the stores, and last quarter, it exceeded 30% of all of our sofa business.

So the collection in total is meeting and exceeding our expectations of -- What it also says, too, is that we're getting our customer in our stores that wants that product, that needs that product based on their living spaces and we think there's continued upside potential here.

You're saying in Q2 more than 30% of your sofa sales were of the Urban Attitudes collection?

That's correct.

Okay. Great. Last quarter, you said you planned for second quarter for seven store openings, I'm not sure if that was the whole network or not, but just want to reconcile your expectations with the performance, because it does look like you opened five Company-owned, right, as well as three dealer-owned?

That's correct.

So is that eight relative to your seven goal or is that five relative to your seven goal?

We primarily, Todd, talk in terms of the network when we give you numbers. The 30 to 35 projects is the network. And after they're open, we'll call them out. The other thing is, this is a fluid situation, depending on how fast we can get stores remodeled, the weather, building.

Sometimes stores float between quarter to quarter. We're pretty confident that the annual number is within a one or two store differentials, but quarter to quarter, it can change sometimes.

Right. On an annual net project number, that's unchanged from three months back, correct?

That's correct.

Okay, And despite buying back the 600,000 shares, it looks like the diluted share count crept a little higher. Did you expect this to repeat in Q3, especially given the 33% dividend increase?

I'm not sure I get that number, Todd. I'll have to look back at that and let you know. I didn't think we crept up this quarter, because our diluted shares of -- the diluted portion of it has subsided some since year end so I'll have to get back with you on that. I don't know that off the top of my head.

Okay. Sounds good. That's all I've got. Thank you.

Thank you, Todd.

Thank you.

(Operator Instructions)

Our next question is coming from Matt McCall from BB&T Capital Markets. Please proceed with your question.

Thanks. Good morning, everybody.

Good morning, Matt.

So also appreciated the commentary, Kurt, around the projected growth, how it's going to break out next year. A couple questions on it. You talk about 20% to 30%. I think that's referring to the 80% that's truly incremental. Can you talk about what gets us to the high end versus the low end of that 20% to 30% range?

From our standpoint, our greatest margin conversion would be if all of our additional sales came through the 100%-plus La-Z-Boy stores we own and we manufactured it all and we would get additional conversion at both the retail and the wholesale business.

But as we said many times, it depends on where the business comes through. On the low side of it would be our casegoods business, because of its import model and it doesn't have as much upside leverage but it has less downside risk.

At the high side would be our retail business as it grows and covers its fixed costs of rents and things like that. So those are the outliers, but we're pretty comfortable because of the mix of the three businesses that range covers us from top to bottom.

Okay. And then when we think about the other 20% of the business, how do we -- I know you've given some components with new store drag and things like that, but how do we think about the incrementals for that 20% of the growth?

Well, that 20% would have all the costs associated with it. So that part of the business would be closer to our normal operating margins in the segment, because it's coming with the same costs that we started with.

Now, they probably would do a little better because there's certain things that we get benefit in the more stores we have and back office situations. But it won't come anywhere close to the 20% to 30%.

Okay. And most of that's in retail, where we won't -- because that's where the new stores are coming in?

Right.

Okay. All right. Then Mike, you referenced the ERP impact on the income statement. What's the total impact on EPS going to be in 2015, and will you have any impact on your results in 2016?

We probably have the same cadence throughout the year on ERP as we go through and add a plant every quarter. Hopefully, as we work on the next couple plants in the quarter and we did -- every quarter we're going live in one plant.

And so the disruptions in the plant, as well as the costs, will subside as the year goes on. And then next year when all the plants are on after we get through the first quarter, then we'll be mirroring expenses last year, and then as we put in our sales order management system, I don't see much of a difference over 2015 and 2016 because both years will be expensed. Where last year we're capitalizing, this year we're expensing, we should not see a significant differential quarter over quarter on a negative basis on the ERP implementation.

What about a positive basis? Will you see less of an impact in 2016 than you're going to see in 2015?

It should be less of an impact as we get the plants all done and we're just working on the front end; yes.

And --

It will be more the second half of the year, Matt, than the first half because we're going live in our largest plant in the summer.

What would that positive impact be? A few million or --?

No, it won't be that significant in the second half, but we will have some less disruptions in the plant as well. So as we get through this year, we'll be able to give you a little bit more color on that. But I don't -- it won't be millions of dollars.

Okay, okay, was there disruptions in the plant this quarter? What's the disruption?

Well, the disruption reference is as we go live, we have to stop manufacturing during the period of time. There's a blackout period in the plant as we convert the inventory and do that.

So every quarter, we're going to have some disruptions in the plant where we're not making furniture for a period of time, as well as getting the next plant ready to go live. All we're saying is that as we're converting the numbers during the next couple quarters, we may not get the highest of our conversion even though we're still making good margin.

Okay. Okay. All right. So that's separate from the new store drag and that's included in that 20% to 30% operating contribution?

Correct.

Margin range. Okay. Got it. And then Kurt, you referenced the $4.5 million average for the new store. I guess that first part of the question was going to be, is there any change there? I assume there's not.

But as we look at the stores that you're targeting for growth, either converted or new stores, is there any reason to not use $4.5 million? Is there anything that's funky about those markets?

First of all, Matt, we will give you as much information as we can in February about the performance of the store network, the performance of our various store formats within the network and the progress we're making with remodels as opposed to new stores.

And there won't be uniformity that every store does $4.5 million. Depending on the size of the market, some of the stores don't have the potential to do it but from -- but if we take a store that was in the old gen and maybe it was doing $2 million, and it went up to do $3.5 million, we'll take that.

And so we also will have stores that do $5 million, $5.5 million, $6 million, to offset those. So we've talked about the average. But to just plug in every store doing that same amount of volume is not practical.

Okay. But the $4.5 million is still a good average over time.

Yes, yes, that would be -- that's our position.

Perfect. Thank you.

Thank you, Matt.

Thank you. Our next question today is coming from Kristine Koerber from Barrington Research. Please proceed with your question.

Good morning. I have a couple questions. First, I wanted to follow up on Urban Attitudes, just given the success of the collection, do you have bigger plans for Urban Attitudes over the long term?

Should we expect to see continued expansion of the product assortment? What about standalone stores for the collection? Anything like that?

We're continuing to maximize what we had introduced a year-and-a-half ago and added to the collection and -- but I think what it says more than just the collection is, I think it talks about how our merchandising and marketing team read the market and saw the void and saw the need.

And so whether we call it part of the collection, this idea of upstyling, this idea of smaller scale, this idea of thinner lines with silhouettes, I think that's a trend that's going on in the industry and with people downsizing and more people living in condos also.

We wouldn't expect our entire upholstery line to be Urban Attitudes, but certainly the success of it so far has been wonderful to see. And I think we will continue to listen to the customer of what she's coming in to buy from us, and make sure we react to her needs.

Okay, that's helpful. And then as far as the Casegoods business, do you -- are you still targeting that 4% to 6% operating margin now that the division has been restructured?

Yes, we are. And we're -- we had the LIFO pick-up this quarter, but we're still combining some functions in the Casegoods business. We're still downsizing from one office to -- from two offices to one.

So there's still some more expenses to come out and some time here to do that. But yes, we think this is, at this point, a mid-single digit operating business and we should be in a better place to achieve that now that we don't have the manufacturing facility.

Okay. Great. And then headquarters, where do you stand with the new headquarters as far as completion?

We are in the final stages. We should be moving in the first part of February. I hope by the time we have the next call, we can have it from the new building.

Okay. Great. And then lastly, I know that you recently hired on a person. It was a newly created role, I guess strategy and analytics. Can you tell us what this individual, what kind of what role he'll play and why you've decided to create this position?

Sure. So we are, as we've said in a lot of things, investing in the future and trying to find other ways to grow the business and we need somebody that has broad experience. You're speaking of Aaron Brown, who is coming to us after, I think, 14 years with BCG, and so he has a wealth of experience, both domestically and internationally.

And we need somebody that's not burdened with the day-to-day business to help us chart a pathway of some other things that we could be doing. We're in the financial position to look at other options, and so it was a needed position for us to expand the reach and view of what La-Z-Boy is capable of doing in the future.

Okay. Great. Thank you very much.

Thank you.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you for participating on our call today. Should you have any follow-up questions, I will be available and give me a call. Have a great day, everyone.

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