La-Z-Boy Inc (LZB) 2017 Q1 法說會逐字稿

Greetings, and welcome to the La-Z-Boy Incorporated FY17 first-quarter results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Kathy Liebmann, Director of Investor Relations and Corporate Communications for La-Z-Boy. Thank you. You may begin.

Thank you, Melissa. Good morning, and thank you for joining us to discuss our FY17 first-quarter results. With us this morning 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. Slides will accompany this presentation, and are available for viewing through our webcast link. 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 FY17 first-quarter results. Given the current retail environment, we were pleased to improve our earnings, reflecting the great strides we have made with our supply chain initiatives, which include not only procurement, but efficiencies throughout our manufacturing operations, as well.

Highlights for the quarter include an increase in consolidated operating income, an increase in operating margin for both the upholstery and case good segments, and significant increase in cash flow from operations to $34.1 million from $1.5 million in last year's first quarter. We also provided returns to our shareholders with the purchase of more than 500,000 shares, or approximately 1% of shares outstanding on the open market.

We are continuing to execute against many strategic growth initiatives, and opened five new stores in the first quarter across the network, as part of our 4-4-5 store buildout strategy. Subsequent to quarter end, the Company moved into Canada with the acquisition of four stores, representing another step as the Company grows its percentage of ownership of the La-Z-Boy Furniture Galleries network. As we move into what is typically a stronger fall selling season, we are in an excellent service position for both our dealers and the consumer.

I will now turn into a brief discussion of each of our operating segments. First, our two wholesale segments, upholstery and case goods. On a 1.9% sales decrease in the first quarter versus the prior year, we achieved 11.1% operating margin. This performance highlights the efficiencies of our plants, and the effectiveness of our other supply chain initiatives, particularly with respect to procurement, productivity, and overall plant efficiencies.

We have talked a lot about supply chain over the past couple of years, and it is a primary focus for us, so I will take a few moments to describe two of the key drivers that are contributing to our success. First, in terms of manufacturing efficiencies, our ERP system upgrade provides for more efficient plant scheduling, and has also enabled us to improve the planning process for materials. As a result of our ability to forecast better, we are improving our service to customers with speed and deliveries. Further, the continuation of various lean initiatives has improved plant productivity greatly.

Secondly, with respect to procurement, our global trading company in Hong Kong is now fully operational and contributing to our overall supply chain savings. The team is broadening our vendor base, while lending their expertise to existing suppliers, to help them become more competitive.

On the sales side, to be clear, we have some work to do on the front end of the various businesses. That said, I would like to add some industry perspective. For the quarter, which for us is the May-through-July period, we experienced softer consumer demand, which we believe is an industry trend, and not specifically related to us. In fact, the US Census Bureau reports that the industry grew 6.6% in the February-through-April period, which would have been our fourth quarter, compared to growth of only 2.4% for the May-through-July period.

And circling back to our margin, in addition of to the supply chain element discussed a moment ago, we also benefited from a slight shift in product mix, selling more stationary sofas and recliners, which generate lower sales dollars, but higher gross margins. Expanding our share in the upholstery category is one of our key growth strategies, and gives us strength of our brand and ongoing expansion of our on-trend stationary line. We see great opportunity in this category.

In September, we'll begin shipping the new iClean fabric introduced at the April High Point Market for the La-Z-Boy product line. This is a fabric with innovative technology that surrounds each fabric fiber to repel spills, and we believe it will be very popular with consumers.

With respect to written same-store sales for the La-Z-Boy Furniture Galleries network, we went up against a healthy comp of 5.3% in last year's quarter. Against that, sales were off 1.9% for FY17 first quarter. As we continue to add stores in a number of existing markets, we are experiencing some cannibalization, which affects same-store sales.

There are a number of markets where we need more stores, based on the demographics of that particular market. When we add a store to satisfy that demand, the existing store or stores in the market may lose some sales, but net-net, the market overall is performing better, and contributing to sales and profitability, at both the wholesale and the retail level.

So let me use a recent example to illustrate my point. In the Richmond, Virginia market, we have had a high performing store in the Short Pump neighborhood. Research and demographics told us that we needed another store in the market, so we opened a new store in Midlothian.

Last year, the original Short Pump store was doing about $5.9 million in written sales. The new Midlothian store is on pace to do $4.7 million in written sales this year, with the Short Pump store likely to lose about 10% or 15% as a result of the Midlothian store opening. However, in total, the two stores in the market are projected to have approximately $9 million to $9.5 million in written sales, or some $3 million more than the original store.

While this is better for the Company's overall performance, it does impact written same-store sales, and we and our dealers have experienced this phenomenon across a number of markets. For the quarter, we believe half of the decline in written same-store sales system-wide was the result of cannibalization. As we build out the store system, our goal is to have a higher market share, and drive same-store sales, but sometimes in the short term, we are facing this cannibalization issue.

We, along with our independent dealers, are hard at work, building out the store network to our 4-4-5 strategy, as we believe the store system represents an excellent means to showcase our entire line of frames and cover, including fabrics and leather, and to provide consumers with a great sales experience, including the opportunity to take advantage of our in-home design services. We have a healthy plan for approximately 30 projects for FY17, including 12 net new stores.

We also have plans for remodels and relocations, which include changing out old format stores into the new concept design, which is performing at the highest level of our three store formats. In the first quarter, the La-Z-Boy Furniture Gallery network opened five new stores, remodeled four, relocated one, and closed one. We ended the period with 342 stores, with 98 of them in the new design concept. In the second quarter of FY17, we are planning for three new stores, and two remodels across the network.

In the case goods business, we were pleased with both our 7% increase in sales, as well as the increase in our operating margin to 8.6%, versus the 7.2% in last year's comparable quarter. Over the last two years, we have been on a course to change out a good percentage of our collections, to reflect today's more casual lifestyle. It has been a significant undertaking, but we are gaining traction with a number of our new transitional collections, particularly at Kincaid, which was reflected in our sales increase for the quarter.

In terms of our operating margin performance, we are gaining efficiencies in the segment as we are leveraging our SG&A with the higher sales volume. And at the April High Point Market, we were excited by the dealer response to American Drew's new AD Modern collection, which is expected to begin shipping in late September.

Now let me turn the discussion of our retail segment. In our retail segment, delivered sales increased 10% in the quarter versus last year's first quarter, with a core base of 108 stores included in last year's comparable period, decreasing 4.4%. As discussed earlier, our 4-4-5 buildout strategy is a key growth driver for the Company, as we endeavor to fully penetrate the North American market with the La-Z-Boy Furniture Gallery stores.

When we started 4-4-5 some three years ago, we projected the Company would increase its ownership to approximately 40% of the store system. Since that time, with 26 stores acquired to date, 50 stores over the last five years, and projected future acquisition activity, we believe we will now own about half of the store network when 4-4-5 is complete. With the ability to earn a combined wholesale/retail operating margin of close to 20% on each piece of furniture sold through a Company-owned store, our integrated retail strategy is a core component to drive the earnings power of this Company.

During the quarter the Company opened two stores, and purchased a store in Reno, Nevada. Additionally, subsequent to quarter-end, we bought four stores from an independent licensee in Canada, three in Calgary, and one in Winnipeg. These stores represent our first foray into the Canadian market, which historically has performed very well, with sales from these stores specifically being among the highest performing throughout the La-Z-Boy Furniture Galleries network, and are expected to contribute some $25 million in sales on an annual basis to the Company's retail segment

We are excited to enter what is a new market for the Company, and as with recent acquisitions, we are integrating these stores very quickly into our portfolio. I would like to thank Cam Davidson and his team in Canada for their 22 years of hard work and dedication.

Moving forward, as FY17 unfolds, we would expect to close on several more acquisitions. For the quarter, our operating margin declined to 2.3% from 5.5% in last year's first quarter. In addition to the lower volume in our core base of stores, we increased our overall advertising spend to drive volume across the Company-owned markets, and in particular, spent more in advertising on a number of targeted test markets.

While we did experience an uptick in those test markets, we expected to write more sales across the remainder of the business, and were not successful. We will continue to make strategic marketing investments and re-evaluate the return on those investments, and adjust our strategy, if necessary. At this point, given the lift in the test markets, we do believe the up-spend will drive increased sales and earnings over the longer term.

Additionally, during the period, although we experienced a decline in traffic, the average ticket increased, which was driven by a higher percentage of custom orders, as well as in-home design sales.

I will now turn the call over to Mike to speak about our financial performance.

Thank you, Kurt. Consolidated sales for the FY17 first quarter were flat at $341 million, compared with last year's first quarter. For the period, consolidated operating income increased 9% to $22 million, compared with $20 million in the FY16 first quarter, with the consolidated operating margin increasing 60 basis points to 6.4% from 5.8%.

The Company reported net income attributable to La-Z-Boy Incorporated of $13.8 million, or $0.28 per diluted share, compared with last year's first-quarter net income of $13.7 million or $0.27 per diluted share. Our consolidated gross margin improved 2.8 percentage points in the quarter, compared with last year's first quarter. In addition to the supply chain efficiencies and changes in product mix that Kurt spoke about earlier, 1 percentage point of the increase in the gross margin was driven by changes in our consolidated sales mix, as retail is a larger part of our business, and carries a higher gross margin than our wholesale segments.

Selling, general and administrative expenses as a percent of sales increased 2.2 percentage points in the FY17 first quarter, compared with the same period a year ago. Here too, the increasing size of our retail segment is contributing to the increase, with 1.4 percentage points of the quarter's increase stemming from the growth of our retail business.

Other drivers of the increased SG&A as a percent of sales include advertising, that was 0.9 percentage points higher in the quarter, reflecting the strategic investment made that Kurt referred to earlier, and incentive comp costs that were 0.6 percentage points higher. The higher incentive comp was primarily due to the increase in our stock price during the first quarter of FY17, when compared with a decrease in our stock price in last year's comparable quarter, as 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 stock price on the last day of the reporting period.

Partially offsetting these increases were legal fees that were 0.2 percentage points lower as a percent of sales in the first quarter of FY17. With respect to other income and expense, we reported $100,000 of expense in this year's first quarter versus $2 million of income in last year's first quarter, related to foreign currency exchange rates.

Now, let me turn to the balance sheet. For the quarter, we generated $34 million in cash from operating activities. We ended the period with $117 million in cash and cash equivalents, $33 million in investments to enhance returns on our cash, and $9 million in restricted cash. During the quarter we spent almost $14 million to purchase more than 500,000 shares of stock, and still have 3.5 million shares available for purchase in our program.

Based on cash flows, stock market conditions and other uses for cash including making investments in the business to drive growth, we will be opportunistic with respect to our share repurchase program. We also paid $5 million in dividends and spent $5 million in capital expenditures, and expect our CapEx for the full-FY17 year to be in the $35 million to $40 million range.

And lastly, our effective tax rate for the quarter was 35.7%, compared with 35.9% for the first quarter of FY16. Our effective tax rate varies from the 35% statutory rate, primarily due to state taxes, plus the benefit of US manufacturing deduction, and foreign earnings in jurisdictions with lower tax rates than the US. For the full year, 35% to 36% is a good range to use for modeling purposes.

Now, I'll turn the call back to Kurt for his concluding remarks.

Thank you, Mike. Looking ahead, we are optimistic about our business prospects. La-Z-Boy remains the most recognized brand in the industry. Our operations are lean and efficient. Our service to both dealers and consumers has improved greatly. Our store footprint is growing, and our merchandising, product offering and values are as strong as ever.

We have significant opportunity to grow in the stationary arena, and we are expanding our distribution channels. While there remains work to be done to complete the execution of our current growth strategies, our team is developing the next set of strategies to take La-Z-Boy Incorporated into the future, and I look forward to introducing and reporting on some of those new strategies, as soon as we complete the development of our plans.

We want to thank you for being on our call this morning, and I will turn things back to Kathy to start the Q&A.

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

(Operator Instructions)

Our first question comes from the line of Budd Bugatch with Raymond James. Please proceed with your question.

This is Bobby filling in for Budd. Kurt, I just wanted to talk a little bit more about the increase in marketing spend that you did during the quarter. Did the channels you chose for the marketing spend, were they any different than previous quarters, and maybe, why do you think it didn't have the same impact you've seen from increased marketing spend in the past?

So I think to answer that question correctly, you have to think about this in two phases. So we picked nine or 10 DMAs, and we did our up-spend test, and frankly, that part was successful, although it isn't immediately accretive, because there's a build process to this, and a lot of the increases we have wouldn't be delivered out until the second quarter. But we saw enough positive direction that we're going to continue the test market on the nine or 10 DMAs.

We came off a pretty good fourth quarter, and we felt that up-spending across the entire store network, and all this marketing was about our retail business. And so we upped our spend, thinking that we would get the business and I think given the statistic I gave you about the slowdown in the industry, compared to our fourth quarter, that spend did not materialize in giving us enough extra business. So we will be watching that one and are making no commitments of what we do going forward, but we will be continuing with the test market spend in the nine or 10 markets.

Okay. Given the slowdown that you referenced for the industry over your quarter, do you see any change from the promotional environment, from a competitive standpoint at all?

I answer that question very similarly all the time. When the industry's on sale 365 days a year, when there's free delivery, when there's 70% off merchandise, I don't think the promotional activity can get much stronger.

A lot of it is about how you find the customer today. So the traditional newsprint and TV, which was so prevalent in the industry, now all of us are doing marketing in 10 or 15 different channels, and I think that's the thing that we need to continue to work on is where does our customer want to be reached, and how do we most effectively reach her?

I appreciate that. With the cadence of sales or cadence of the slowdown, any difference throughout the quarter, did it pick up towards the end? Any color that can help us think about how we should frame our view going forward based on what you're seeing?

No, there wasn't a big delta between May and July. And again, from the government statistics, May was actually negative for the industry. We were not negative, but no, I wouldn't say that there's any pattern that we can detect.

Okay. And then Mike, just real quickly from a modeling standpoint, how should we think about the margins for the four Canadian stores, when we try to flow those into our model?

As we've spoken before on these, when we're normally buying these companies for retail, they're usually better than our margin that we have as a consolidated retail segment. On a consolidated basis, because we already have the sales of the business that we sell to them, for the business we're getting a better margin on a smaller sales base. So it's accretive overall to the business, as well. This will not be below our margins that we're currently producing on our retail segment.

Okay. I appreciate that detail. Thank you everyone for answering my questions and best of luck going forward.

Thank you. Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your question.

Just to follow up on some of those questions about sales, if I could. You all have had such a nice track record over the last few years. This quarter's really a bit of an outlier. I guess Kurt, as you look at it more closely, why do you think you all underperformed, maybe the industry numbers, in this quarter?

Well, I wish I could give you -- I wish we would pinpoint exactly why, because we're seeing the slowdown, which we don't think is going to continue forever, but we're seeing it across all channels, across all geography. So it's not like the West Coast was strong and the East Coast was poor, anything like that.

Encouragingly, we have seen less decline -- no more decline in Western Canada and Texas. So that's bottomed out, although it's some probably 15% or 20% below where it was at its peak. It doesn't seem to be going any further negative.

So it was a myriad of things, and it was with a multitude of customers, and we're digging into it. But there's no silver bullet that shows up, that this is our core issue.

Got you.

We think hopefully this is an anomaly.

And so as we think about the upcoming quarter here, I think the promotions that I've seen for you all for Labor Day suggest up to 25% off. Any changes we should expect out of you from a promotional standpoint in the weeks and months ahead?

We're going to read where our business is at after the Labor Day holiday. It is either, depending on which retailer you talk to, it is either the second or third largest weekend in the furniture business.

So we're going to take stock of where we're at, and if we perform as expected, we'll probably stay the course. If we don't hit our objectives here in the next couple weeks, you could see some changes being made.

Got you. And as you think about some of the new products you have, like the iClean fabric, how has the initial customer response been to that, and what are you baking in from iClean, for example, in the quarters ahead?

Well, so it's not been out in the field long enough to get a consumer reaction, but obviously our dealer network bought in heavily on the uniqueness of this fabric and the competitive advantage, and story they have over the competition, because we have iClean as an exclusive for a year. We don't know.

We believe it's going to be -- because there's some 50 colors and patterns in the collection, and we feel that it's going to get some great reaction and it's slightly higher priced. So if a customer was carrying a chair with a normal fabric on it that they slipped over to iClean, the average selling price of that will be slightly higher, and should be beneficial to both our dealers and us.

Good. Thanks for all the color, Kurt, and good luck to you all.

Thank you. Our next question comes from the line of John Baugh with Stifel. Please proceed with your question.

I had a few questions. Let's start with Canada and the acquisitions there. I guess a few questions around that.

One, help us understand how many other licensees are in Canada, how this came about. Obviously you mentioned the degradation in the oil markets has stopped, but I presume that they're down materially year-over-year.

So help us think about how that purchase got done. It's a very profitable, what, $6 million plus per store. Help us think about the trend of that business, how you negotiated that deal, the specific numbers, and then what your thoughts are overall are on Canada.

We've stated for a long time that we started in the La-Z-Boy store business 10 or 15 years after we had stores in the US. And I think we knew a lot more about what we were doing. We engaged a lot of very successful retailers to join our program, and on balance for a long time the average per-store performance of the Canadian stores has been above the US.

But we didn't start there with small stores, we didn't have a lot of movement to make. And particularly the Calgary operation has been, on a per-store basis, the best performing business we've had in a long time.

There's nothing really unusual about this, John. He was in a situation like a lot of dealers we have purchased in the last couple years. He was -- I think he's above age 70 and he doesn't have family in the business and he wanted to sell the business to us, and we worked on what is a fair arrangement, given the downturn in his business, and he was agreeable to that, and we were thrilled to have this business.

I do want to make the call out that I think we said the business is doing $24 million or $26 million of retail sales. For the increase for La-Z-Boy, it's only half that, because we're already recording the other $13 million at wholesale. So if you're doing your modeling, I don't want you to add $6 million a quarter to our retail business overnight.

But again, very well-run business, a totally remodeled store, a brand-new store two years ago. We have high expectations, and we think we have a fair deal for both our dealer and ourselves.

Is there any additional complexity operating in Canada with corporate owned, and how many other licensed stores are in Canada?

I think there's another probably 25, maybe 30 stores in Canada. We have, I think, 11 or 12 in the greater Toronto area. And there always is peculiar about employment laws and things like that, but nothing we weren't aware of, and nothing we don't think we can handle.

Okay. Moving to the inventories, which were terrific, I think last year you grew $22 million sequentially from Q4 to Q1, and this year relatively flat. Obviously sales came in below where you expected they were, but inventories look good. So I'm just curious how you feel positioned inventory-wise going into the back half of the calendar year?

We think we're in great shape. We were under-utilized a year ago, and we had to catch up, and so maybe we over-reached, but we found this equilibrium and we're getting 95%-plus of our stuff is shipped less than four weeks, and our outages are very small.

I think we had this morning less than 2,000 late orders, and so our team has done a much better job of forecasting, flowing. Our vendors have done a better job of shipping on time. So we're in the right inventory position as we head into fall and I'm proud of the team that's done this hard work the last two years to get us in this position.

I wanted to talk about the upholstery margin segment, which was terrific. But trying to understand, and I guess we could talk EBIT or we could talk gross margin, whichever is easier, but trying to understand all the parts, and I looked at the Q, it looks like there was 30 basis points withheld from legal. We talked about mix. I think that helped 70 basis points, and then of course all the supply chain efficiencies.

The simple over-arching question would be, you had a 200 basis point increase year over year, 210 in that segment. How much of this is sustainable, how we think about our model going forward in terms of supply chain and mix and other factors? Thank you.

That was one question, John?

Yes, just one question.

Where do you want me to start? So I think this is not a big surprise for the quarter, given the improvements we made last year. And we would be disappointed if we don't perform at the low end of double digits and move that on up over time.

A lot of it is dependent on volume. We've got high fixed cost plans. We put the volume through it. I think we'll see a good margin. If the industry has a slowdown, that's a different question.

And that legal issue you brought up, year over year it was, I think, less than $400,000. The comparison was not that great. So that year-over-year is not a big differential. So we would stick to our forecast of having a low double-digit operating margin in the upholstery business for the near term.

Okay. And then my last question is on the revenue front. I know it's not [blood orange] but you talked about 4.4% decline in delivered comps in retail, and then of course you give out the written orders system-wide being down 1.9% in the quarter. Is there anything to read between those two numbers? Does that tell us anything, that maybe shipment decline in the quarter obviously was worse than the comp, or am I slicing it too thin there?

I think you're slicing it to thin. Remember, I talked earlier about probably half of that decline on written for the system was due to some cannibalization. Part of what shows up in the delivered number is we didn't have the greatest April in written sales, either. So that's what flows into the next quarter, as far as deliveries.

So it is something that surprised us, that it performed the way it did this quarter, but again, we were also up against a 5.5% growth rate last year, which was probably over-performing. So we don't think there's a fundamental issue with our business. We just think maybe we have a couple tweaks to make, to get it back on track.

All right. Thank you for answering all those questions. Appreciate it.

(Operator Instructions)

Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.

Most of my questions were answered, but just wanted to touch briefly on case goods, certainly realizing that it's an overall small component of your business, but nevertheless, a positive surprise to us. So maybe you can touch on why do you think case goods sales were up, as well as the operating margin performance was better than last year?

Good question, Anthony. And I would say that even though it's the smallest segment we have, it is strategic to us, in the realm of the fact that the La-Z-Boy stores do sell bedroom, dining room and occasional tables and it's a very -- that's a very important part of our selling rooms to the customers. So that is why we're in the case goods business, primarily.

Secondly, this product refresh that we've talked about that we were overly traditionally based with our product selection, and for the last two to three years we've been phasing out of groups, introducing more lifestyle groups, and that has close to completed its cycle, and we're starting to show the results of that. Finally, like we are in the La-Z-Boy business, we are in the best service position in case goods that we've been in a decade. And we did switch over a couple years ago to the all import model, so blending, making it at a factory in North Carolina, and importing and trying to do both was more complicated than maybe we wanted to admit to.

So it's a combination of product styling and value, and then being in stock, which on the number of SKUs that we have in the case goods segment, is not an easy thing to do. But the team is, again, above 90% being in stock on all the collections, and all the tables that we have in our portfolio. So a great job by the case goods team, getting to that position.

Got it. And sounds like you expect more incrementally at least, higher sales because of the new AD Modern collection, as well?

Yes. Again, that will hit floors in September and October. We won't have a lot of that in our next quarter numbers, but we have high expectations. And even though we have a lot of dealer buy-in, collectively, we're not always right so we've got to let the consumer vote, but we're pretty sure that we've got something that's going to help the American Drew line immensely.

Got it. And just wanted to get a better perspective as far as, Kurt, earlier you mentioned that you tested the marketing spend against nine to 10 DMAs. When you look at your store network, or your overall business, how many DMAs are you in right now? So just wanted to get a sense as to what percentage of your overall business does that nine to 10 DMAs represent?

I think this is directionally a right answer, it might not be 100%, I think we're in somewhere between 30 and 32 DMAs. So this is like a third of them.

Got it.

And we're testing this, and we're going to continue to refine and make sure the data's right, and if we continue to have the positive experience, we'd roll it out to more. But we weren't willing to roll the dice and do it in all 32 DMAs out of the box.

That makes sense. And lastly, so when you take a step back and I think you may have answered this question a little bit before, but the new ERP system clearly is helping, so when you look at the quarter and plus opportunities going forward, how much more efficiencies can we get from the new ERP system?

I think we're just in the early phases of learning all the benefits that we can get from the system. So once you get the system in, which is the long tail of things you have to do to operate it efficiently, then having our teams at the plants learn to use it, and use it more pervasively, is the challenge. So we're still early in that journey.

The other thing I have to make everybody is aware is, raw materials has been in our favor too for the last couple years, and that's -- there's some benefit to that. And we haven't had to take price increases to offset those as of late, so that has helped us being able to continue to drive up our margin, as well.

Okay. Thank you.

Thank you. There are no further questions at this time. I'd like to turn the floor back to Ms. Liebmann for final remarks.

Thank you, everyone, for joining us this morning. Should you have follow-up questions, I will be available later today, and you can give me a call, or send me an e-mail. Have a great day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.