La-Z-Boy Inc (LZB) 2015 Q1 法說會逐字稿

Greetings and welcome to the La-Z-Boy Incorporated first 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.

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 FY15 first-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. Good morning, everyone, and thank you for joining us.

Yesterday afternoon, we reported our first quarter results for FY15. During the period, we increased consolidated sales by 7% and increased operating income by 12%.

While this was accomplished amidst the challenging retail environment and seasonally slow quarter, we also made important investments in the Company to drive long-term profitable growth. These include activities associated with opening new stores, a core part of our 4-4-5 strategy, additional advertising to drive sales and further increase market share and investments in technology.

Our team remains focused on the steady execution of strategic initiatives to deliver growth throughout the enterprise while leveraging the power of our brand, our distribution network and the lean operating structure to fuel profitability. At the same time, our balance sheet remains strong, strong which provides us with the necessary flexibility to execute our strategy in the dynamic environment while allowing us to continue to invest in the business to provide returns to shareholders. And on that note I am pleased to report that our Board of Directors approved an increase of 5 million shares for our share repurchase authorization, demonstrating their confidence in the Company's ability to successfully execute its growth strategy while generating ongoing strong free cash flow.

Now let me turn to a review of our three operating segments. First, our upholstery segment. For the quarter, sales increased 6.8% and we posted an 8.4% operating margin with a slight increase in the gross margin.

With unique multi-channel distribution strategy, including branded outlets as well as independent dealers throughout North America, sales increases were experienced across all channels. Same-store sales for the 317 La-Z-Boy furniture gallery stores increased 1%. It's important to note, however, that we are lapping an average increase of 10.5% over the last three years first quarter and a 12.7% increase in last year's first quarter.

During the period, the upholstery segment had higher expenses associated with advertising, a new regional distribution center in Southern Ohio, initial investments in a new eCommerce platform and website, as well as our continued cost associated with our ERP system as we implement it throughout all of our plants. These costs were somewhat offset by lower incentive compensation that impacted our operating margin for the quarter compared with last year's comparable period. As I mentioned earlier we are investing in various platforms across the Company to not only drive growth but to build our overall infrastructure to improve efficiencies.

With respect to advertising, the Live Life Comfortably campaign continues to deliver results. We are undoubtedly seeing an expanded base of consumers migrating to our brand as they become aware that we offer a wide array of stylish and on trend furniture. To support the introduction of the new Urban Attitudes collection, we aired new commercials during this quarter.

While too early to quantify the success of the collection, we believe that it will be an important element in our brand repositioning as we seek to expand our consumer base with younger individuals and those who are interested in more than our core recliner offering.

We are also investing in a new website and eCommerce technology platform, which we believe will greatly enhance the consumer experience on our desktop and mobile sites. It will enable consumers to be more -- easily discover and learn about our products as well as make the online purchase process much more simple and seamless.

We are implementing Oracle's market-leading Endeca and ATG Solutions, replacing the technology infrastructure we currently have in place on our sites. Work on this project began in Q1 of 2015 and the upgraded sites are expected to go live in the fourth quarter of this fiscal year. With most consumers spending increasing time online before and during their in-store shopping experience, we believe investing in our consumer-facing technology is very prudent.

The key to our long term growth plan is building out the La-Z-Boy Furniture Galleries network through our 4-4-5 store growth strategy. For those of you new to our story, 4-4-5 reflects our objective to grow our store base throughout North America to 400 stores averaging $4 million each in revenue over a five-year time period. We are in year two of the program and plan to have it completed at the end of FY18.

For FY15, we have an ambitious plan of 30 to 35 store projects, which include new stores, remodels and relocations and believe if things stay on schedule, we will end the year with the 12 net new stores. For the first quarter, two stores were opened and five stores were remodeled throughout the network.

All new and all remodeled stores will be in the new design concept format, which is averaging approximately $4.5 million today in revenue. Today, we have 38 new concept design stores and expect to have approximately 65 at the end of the fiscal year. For the second quarter of 2015, we plan to open seven stores, remodel five, relocate two, and close one.

Once our 4-4-5 strategy is completed, the store footprint across North America will be significantly improved, both in terms of market penetration and the format of the stores with approximately 200 stores in the new design concept format across the network.

In addition to increasing our volume with our store growth strategy, we have the opportunity to deliver greater 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 manufacturing facilities.

Now let me turn to a brief discussion of our case goods segment. Sales in our case goods segment increased 16.6% and our operating margin for this segment was 5.3%. We are pleased with the turnaround we are beginning to see as a result of the many changes we have made to the business, including the restructuring announced in April.

Additionally about a year ago, we began to refresh our product line across both Kincaid and American Drew with the introduction of new collections that are more transitional in styling to appeal to a broader group of consumers. The collections are beginning to gain traction. We are now in a better stock position across the entire case goods segment and we continue to see strength in our occasional business.

Also during quarter, we began transitioning the remaining Kincaid and the American Drew product lines to Asia and we were able to introduce our inventory domestic groups that we discontinued as part of the restructuring of the segment, which includes the closure of our Hudson, North Carolina facility and transitioning to a Pier Import model for wood furniture. Moving forward, as we complete our product refresh and change our cost structure, we believe we will improve the performance of the segment on a consistent basis.

Now let me turn to a discussion of our retail segment. Delivered sales in our retail segment were up 10% in the first quarter compared with last year's comparable period. The sales were flat for the core base of 88 stores included in last year's first quarter. The operating profit for the segment was $300,000.

Of the 30 to 35 store projects associated with the 4-4-5 strategy for FY15, approximately half will be in the Company-owned retail segment. For the quarter, we opened one store and have five new stores in various stages of completion slated to open in this current quarter.

One-time costs associated with opening new stores, including labor and other start-up expenses, impacted our conversion for the period; however, these expenses reflect necessary investments to grow the business as we more fully penetrate the markets in which we already operate and move into new markets like Minneapolis, St. Paul when we plan to open several stores over the next 12 months.

We also remodeled two stores during the quarter. As we mentioned last quarter, there is about a quarter of a million dollar drag associated with the 90-day period surrounding a store opening.

With respect to the Company-owned projects planned for FY15, we believe this will translate to a $0.03 impact on our earnings per share for our consolidated results. Longer term, however, a larger Company-owned retail business will drive the blended wholesale retail margin associated with our integrated retail strategy.

During the period, we increased our gross margin slightly and improved our conversion of lower traffic, indicating more qualified customers are entering our stores with our selling process and disciplines, achieving results. As we move into the second quarter, we are making some minor changes to optimize our promotional messaging and media mix including TV, digital, and more frequent in-store events.

I would now like to turn the call over to Mike to go through our financials.

Thank you, Kurt.

Consolidated sales for the FY15 first quarter were $327 million, up 7% compared with last year's first quarter of $306 million. This year reflects the reclassification of Lee and last year reflects the reclassification of both Lee and Bahaus to discontinued operations.

For the quarter, consolidated operating income was $16.5 million compared with $14.8 million in the FY14 first quarter. The Company reported net income from continuing operations attributable to La-Z-Boy Incorporated of $10.6 million, or $0.20 per diluted share.

Net income for the period includes $200,000 after-tax of restructuring income, mainly related to inventory recoveries in the case goods segment. This compares with last year's first quarter net income of $9.6 million, or $0.18 per diluted share, which includes $100,000 restructuring charge mainly related to write-downs associated with the closure of the lumber processing operation in the case goods segment.

As noted in our press release, adjusted income from continuing operations attributable to La-Z-Boy Incorporated per share was $0.20 in this year's first quarter versus $0.18 in last year's first quarter, as there were no adjustments called out that affected the earnings per share in either period. For the quarter, our operating margin was 5% compared with 4.8% in last year's comparable quarter.

Also during the quarter, we reported $3.8 million in income, or $2.4 million after-tax and CDSOA money related to a former subsidiary, which was included as a component of our net income from discontinued operations. When we sold the Company in fiscal 2007, we retained the right to receive a percentage of duties for some of the years during which we owned the Company.

Now let me turn to SG&A. Selling, general, and administrative expenses, as a percent of sales increased 0.7 percentage points in the first quarter of FY15 compared with last year's first quarter, primarily as a result of the increased investment spending to drive growth that Kurt spoke about earlier.

Partially offsetting these costs was lower incentive compensation, which was $2.4 million lower, or 0.9 percentage points than in last year's first quarter. The main driver of this decrease was the reduction in our share price during the quarter.

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 contrast, if our share price increases throughout the year, it will have the opposite effect on our earnings.

Now turning to the balance sheet, during the quarter, we used $1.2 million in cash from operating activities and ended the period with $116 million in cash and cash equivalents, $45 million in investments to enhance returns on our cash, and $5 million in restricted cash. We used cash during the quarter to pay down our debt by $7.2 million, mainly due to the maturity of an industrial revenue bond, spent $19.4 million in CapEx, paid a $0.06 per share dividend and purchased 250,000 shares of stock in the open market under our existing authorized share repurchase program, leaving 2.6 million shares in this program in addition to the 5 million shares authorized by the Board yesterday, giving us 7.6 million shares authorized for repurchase, or approximately 15% of the total outstanding shares.

We plan to continue to be opportunistic in the market with respect to buyback activity and feel confident in our future to invest in our Company stock.

Our inventory increased during the quarter in anticipation of two things. First, is the Fall selling season where we want to ensure that we stay in stock and cover, as well as finished goods for our imported case goods. And second, we purchased ahead due to an anticipated longshoremen strike in California that did not materialize. Our accrued liability decrease was in line with our incentive compensation payouts in the first quarter and our accounts receivable collections were comparable to prior first quarters.

As mentioned earlier, CapEx for the quarter was $19.4 million and about 70% of the spend relates to our new office building. We still anticipate CapEx for FY15 to be in the range of $60 million to $70 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. As we are in the implementation phase of our ERP system at this time, most of the costs associated with it are being expensed rather than capitalized.

Lastly, our effective tax rate for continuing operations for the first quarter of FY15 was 35.3% compared to 35.5% for the first quarter of FY14. Our effective tax rate varies from the 35% statutory rate primarily due to the effective state tax rate offset by the benefit of the US manufacturing deduction and foreign earnings and jurisdictions with lower tax rates in the US. We continue to expect our tax rate to be in line with the first quarter effective rate.

And now I'll turn the call back to Kurt for his concluding remarks.

Thank you, Mike.

As we move into FY15, we have significant opportunity to drive growth throughout all segments of our business. We have an excellent strategy in place to strengthen our platform across North America, a strong brand and distribution network, solid advertising, marketing and merchandising strategy with a lean and efficient manufacturing structure. We are continuing to invest in a number of initiatives to fuel top line growth, feel confident we can deliver on an annual basis a 20% to 30% conversion on the incremental sales growth as we move forward throughout fiscal 2015.

We appreciate you being on the call this morning and I'll turn things back to Kathy for 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.

Thank you.

(Operator Instructions)

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

Thank you, this is Bobby filling in for Budd. Thank you for taking my questions and good morning.

Good morning, Bobby.

My first question is on the retail segment. Just to clarify, Kurt, the $0.03 impact that you called out in your prepared remarks is for the full fiscal year; correct?

That is correct.

All right and how should we think about that headwind having an impact over the next three quarters; is it pretty even or should we expect a bigger impact in one of the quarters?

It's probably a little higher in Q2 and Q3 and less in Q4. The rush to get as many stores as we can open before Thanksgiving and then some of that trail on after that, so we will have more projects in Q2 and Q3 than we will have in Q4.

All right. Thank you and can you offer any color on what type of impact those projects had on the retail margin this quarter to try to help us arrive maybe at a -- some type of a normal type of margin without the impact of opening costs?

Well, we talked about the seven stores that two of them opened in this quarter and the five, so there's the first 60 days before the store opens of training costs and getting things ready to go. And then for the first month, you're selling and paying salaries and other start-up costs with no delivered revenues, so it's hard to give you an exact number because depending on when the stores open in this period.

So in some of the stores we had all 60 days of that expensed before it opened and some of the cases we had the full 90 days because we opened two stores. And in other cases, we're not going to open a couple stores until later in the second quarter so it's -- I mean, there's not going to be zero one quarter and $0.03 one quarter.

It's going to be probably $800,000 to $1 million a quarter here for awhile and then next year when we anniversary that, it will already be in our base, but since we're being a lot more active in stores, that's the potential impact it could have this year.

I appreciate that color and then can you maybe comment on your plans for advertising going forward? I notice it ticked up a little bit as a percentage of sales in the first quarter but should we expect that to ramp going through the back half of the year?

No, our plan has been fairly consistent. We have continued to spend more money in marketing and advertising as we've grown but we've kept the sales to expense ratio pretty consistent and we wouldn't see any difference.

One of the things that we did this quarter because of the new creative we did in the new commercials we ran, we also had to pay for the production costs of those commercials and that was where the spend was up. It wasn't necessarily a lot more media.

Okay, appreciate that. And then maybe lastly for me, just on the rollout of Urban Attitudes, can you comment maybe on how much of it's rolled out? Is it fully on the floors yet?

Yes. It's fully on all of the La-Z-Boy furniture gallery floors and other dealers. Certainly, we would like to sell the collection to other independent dealers that we haven't been able to penetrate yet, but it was rolled out enough that we felt comfortable running the marketing to launch the collection.

And our initial response has been very good and we will give some color on its percentage of our total upholstery business and some other insights here as we go through the end of the year.

All right. Thank you. I appreciate you guys taking my questions and best of luck going forward.

Okay, Bobby. Thank you.

Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Thanks, good morning, Kurt, Mike and Kathy.

Good morning, Brad.

Just to follow-up on sales, just was curious what you had been seeing through the course of the quarter and from a regional standpoint, just putting it into context, we did get a nice acceleration from 4Q to 1Q against a visibly tougher comparison here. But we're not quite back to that torrid run rate that you all had in the prior couple of years so just a little bit more color about what you've been seeing would be helpful.

Well, two general direction comments there, Brad. I -- in general, the quarter improved as we went through it, so July was stronger than May and June for the entire network, so we're encouraged about that. And the comment on the regionality, frankly, the areas that had the most difficulty after the downturn, California, Las Vegas, Phoenix, Florida and frankly, Michigan for other reasons.

We're still seeing highest percentage growth in those areas but they also went down the farthest, so whether all parts of the country are yet back to their peak or their norm before the recession, I don't have that in front of me. But we do get excited about things in pretty good comps in certain areas but then we have to remind ourselves how far down they sell during that difficult time.

Okay, great and then just as we look at our models for the balance of the year, given that there is more growth coming from a store standpoint, what do you think the difference could look like between the written same-store sales and what the total revenues will be through the balance of the year?

Well, that's hard for us to predict, Brad, and one of the things that you'll notice this quarter, even though the same-store sales were only up 1%, our total volume was up 7%. And although we believe the store network is a growth engine for us with all of our companies with England and case goods and 45% of La-Z-Boy sales coming from other than the stores, we're positioned uniquely to have a multiple distribution channel environment to where there's not a one-to-one correlation between how our stores do and how the Company does overall.

Obviously, the stores have a huge impact on how we perform but it's hard for us to predict how the general dealers are going to perform and some of our major customers that aren't related to the store. So that's why it is kind of impossible for us to give you that number but I wanted to make that distinction between where we get our wholesale volume versus what the retail volume alone provides us.

That's helpful. Thank you. And if I could just squeeze one more on the opportunity to upgrade the website and eCommerce, you all are in a bit of a different situation than many companies in that you sell-through your own stores and licensees and third parties. Could you maybe talk a little bit about what you see the role of the website being longer term as you make these investments?

Well, obviously, it's a necessary tool for the consumer to gather information, be educated and understand your Company so we think the easier we can make it for her to navigate, the more options we have for them to do to the render product, to put on fabrics, to use our room planners, all of that is important.

And we're approaching 2 million hits a month on our website so -- and it's growing all the time. So it is a way the customer wants to communicate and like any other technology, it continues to improve and you have to invest to keep up to date.

So this will be a big upgrade for us but I can probably tell you in another four or five years, we make another one because that's just the way it happens with technology. And if that's the first impression that the consumer has about your brand, you want to do as good a job as possible to entice her.

Great, thank you so much, Kurt.

Thanks, Brad.

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

Thank you. Good morning, team. A couple things here to start out with. Case goods, nice number. Kurt, is that -- help me understand how much of this is, say, sell-through versus I don't know, sample or reshuffling? Or are we at a point where case goods sales have bottomed and are likely to go up from here or is there just timing with something that happened a year ago or this quarter unusual?

I would give you two insights, John. Our case goods business was performing better than it appeared last year on our report outs because our youth business was declining so much. So the net effect of that kind of dwarfed the true performance of those businesses. And now that we are going to have that move along, the business wasn't as weak as it seemed to on our financials and our sales growth.

The other part is part of this quarter was we were out of stock on some things and we caught up, so we do not expect a continued 16% growth right now. But we do expect the case goods model has bottomed and will contribute to the Company's growth through the rest of the year.

Great, thanks for the color. And then on -- I believe I heard a comment about 30% contribution margins. Is that, was that essentially guidance which I know you avoid like the plague but for the remaining nine months of the quarter or did I mistake that or any color there?

You have bad hearing, John. You did not hear that. You heard 20% to 30%, okay? On an annual basis, on incremental volume, so one of the things we have to be sure of that is as we open more stores or we would buy back stores or things of that nature, for us that's not incremental volume because we have the expense associated with it.

So on the true incremental piece, we don't think there's any reason, like we've done the last two years, we don't think there's any reason why we couldn't convert somewhere depending on where the volume comes from the 20% to 30% range but that's not guidance. That's not on the entire sales growth and we'll have fluctuations like we did this quarter, quarter to quarter but still thinking the whole year's time frame, we're comfortable with that position.

Great, thanks for that color and then maybe specifically, and tying into that SG&A, so I guess if we add back the incentive comp, it was 160 basis points year over year in the first quarter. I understand the first quarter is seasonal.

I understand there was some perhaps production ed costs, other things. Any color, Mike, on how we think about that for the latter nine months of the year, just leaving out the incentive comp piece for the moment?

John, we give the conversion range from 20% to 30% on how we're going to do the incremental volume, we gave some color this quarter on why our SG&A, and you're right about the seasonality. It is our low volume quarter so all that being said, I think you've summarized what our issues are for the quarter and we don't really have much more color to add to that.

I would say though, John, if you think about a typical quarter other than the first quarter for us was somewhere between $40 million to $50 million larger. So those same expenditures during a time when you have that much more volume is not going to be impactful, seeing they're impacts.

But we had to do these. There were timing reasons why we did them in the first quarter and we wanted to be in a position for the Fall and be ready to go, so we, just like our advertising percentage, we don't expect to greatly enhance our SG&A spending going forward.

Other than when we talked about the drag on the new stores, and Mike's talked the last couple quarters about the additional expense we have on E1 as we finish the year, but we have that in our plan and our expectations and still are confident on the conversion.

Great and then the last question would be a two-year contribution of 20% to 30% on incremental. Is there some way for you to help us think about either a dollar amount or a percentage of revenue for the year that would be non-incremental that you know today that would, in other words, roughly be it anything in terms of new stores or acquired revenue or any dollar amount?

So if we had a 5% or 7% revenue increase for the year, half of that or a third of that or whatever would be non-incremental?

That's a fair question. We don't have that in front of us today but I think to help all of you with your models and all, I think we need to give you some color on that at the next call to try to give you some idea of what our expectations are.

Great, thanks. Good luck.

Okay. Thanks, John.

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

Hi good morning everyone.

Good morning, Todd.

I'd like to get your early assessment of Urban Attitudes, what you're experiencing, what you've learned thus far and maybe also I don't know if you've mentioned but were there any close outs to speak of within upholstery or retail that were items that were discontinued in favor of some of the newer merchandise?

Well, I'll answer the second part of the question first, Todd. Flowing in Urban Attitudes to all of the floors is a normal cycling we do after every market with new products so we always have things coming off the floor and things going in.

I think we change about 25% to 30% of the floor every year so that's a natural progression and Urban Attitudes wasn't added on to all of the other product introductions we do in any one season so there wasn't any mass discounting or close-out going on during the quarter.

We're very pleased with the rollout of Urban Attitudes. We've had a lot of marketing support of it. I think one of the great statistics that I won't give you all of the data that hopefully, we will later in the year but one of the great indications right now is two of the styles from the Urban item collection and made it into our Top 10 styles in our upholstery line. So that would indicate great receptivity to the line.

And again, this is all new and it's not on as many floors as some of our core product that's been out there for years so we're very encouraged by the initial response and all. But again, Urban Attitudes, other than from just a product sales standpoint, has a lot going for us in trying to serve a customer that we don't serve today, try to get more interest, try to elevate the style quotient of the brand. And so it's got a lot of other intangible benefits rather than just the pure sales of the collection.

Got it. By my math, you're planning to open about actually exactly half of the net new stores you expect for the year in this quarter Q2. Have you opened any since July 26?

No, but we are -- the Company has not but we're opening three or four of them here before Labor Day, so we expect that some of these to actually open in the first quarter. We had some delays for various reasons but we had two opening in Florida, or one in Brookfield, Connecticut, one in Canton, Michigan and one in Kansas City, so they will all be open I think by mid September.

Thanks, guys. That does help. Kurt, on the -- just want to ask you for a little clarification on the statement that you made regarding commercial production costs for Q1 had incurred some of the production. Does that, do those expenses fulfill all your obligation or your need for all of the spots that will air in this fiscal year or are you set for the next two quarters or one quarter? How should we think about when, if at all, that ramps again production costs that is ramp again out to year end?

Good question, Todd. We will probably have some new creative commercials in most likely in the fourth quarter of next year but there won't be any more between now and Christmas.

And roughly what was it in dollars, what was that contribution in dollars in the first quarter?

Well, I'm not going to tough call there -- but we produce very high quality, very first class commercials and they come with a cost and that's why we called it out but we're not going to quantify exactly.

Will the Q4 costs be comparable or less or greater?

Depends on how many commercials we do, and we haven't planned that yet and again, the fourth quarter could be $50 million, $60 million, $70 million more. This is historically. I'm not giving you a projection but typically, it's a heck of a lot more, so one extra commercial, we wouldn't even call it out because of the size of the business and that season would be much different.

Understood. Thanks a lot.

Thank you, Todd.

Thank you.

(Operator Instructions)

Our next question comes from the line of Kristine Koerber with Barrington Research.

Good morning. A couple of questions. First, as we look at the upholstery sales growth, I read that there was a shift to more recliners and less sales in motion -- sales in chairs over last year. Can you just -- any idea of what's driving the shift to more recliners? Is it the product or consumers maybe being a little more cautious with their spending? Just trying to get a little color.

Yes, Kristine, I'd have two comments on that. First of all, we don't believe it's a long-term trend. We have a very mature recliner business and the growth opportunities there are not as large as in some other of our businesses, so I think that was something that we're not counting on that being a continued trend.

I think the other issue for us and with our general dealer population and other major accounts other than the stores, I think there's been a lot of changes in the marketplace with our various competitors and I think La-Z-Boy has benefited from a number of those changes. So I think we have probably have larger assortments on floors and maybe a few more dealers carrying our line than previously, so again, that was a competitive thing.

But no, we cannot point to one product thing that we've done that would say that, that was the reason. It just so happened that there were things flowed his quarter that popped out.

That's helpful and you indicated that trends improved throughout the quarter. Does that include traffic trends or are you just talking about overall sales trends because I know conversion really (multiple speakers) --

I was pretty much talking about sales. I don't have the traffic trends ahead of me but normally, they go hand in hand, but my comment was strictly about our sales performance.

Okay. And then as far as Urban Attitudes and some of the just new product in general and just what you're doing on the advertising side, you indicated that you are trying to attract and have attracted new demographic. How are you measuring that or how do you get your arms around the customers coming in and if you are getting that demographic on board?

Well, I think there's a couple of ways we do that. We get a tremendous feedback not only from our own stores but from all of our dealers about the type of customer they're seeing, the type of customer that's coming in doing large in-home design projects. We just got a note yesterday from one of our dealers who did an $80,000 in-home design project in California and it's -- so anecdotally, we received that.

We're continuing to have increase in sales on slightly down traffic, so our conversion rates because of our discipline and selling processes that are very good but we also believe the customers coming in a little more predisposed to buy. She gets a lot more information today on our -- on the internet about our brand, about things that we do.

And so we've got various points of the customers that we get in and then when we do our research six and nine months later about the customer's addresses and everything and where they live and their zip codes and everything, we can tell that there's been a shift in the income disparity of our customer as we move forward.

Okay. That's helpful and then just lastly, you indicated the average volume for new -- for stores under the new concept are roughly $4.5 million. Have you remodeled the some smaller stores or converted smaller stores to the new concept? And if so, what are the volumes at the smaller stores, because I think you have a decent percentage of smaller-size stores in your base. And I'm just trying to get some idea of what the range is on volumes under the new concept.

So let me try to clarify. The number we have talked about, the $4.5 million volume for store was what the new design concept stores did in calendar year 2013. We're only going to give the updates on the different segments' performance or different store design performance once a year.

And candidly, we don't have enough remodels yet to give you clarity on what's the lift on that or what's the difference between small store, big store. But let us get these next 30 stores open and we think we'll have a reasonable base to be able to answer those questions more intelligently.

Okay, great, thank you.

Thank you Kristine.

Thank you. Ms. Liebmann, there are no further questions at this time. I'd like to turn the floor back to you for closing comments.

Thank you, everyone, for participating this morning. If you have follow-up questions, please give me a call. Have a great day. Bye-bye.

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