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Text: Melinda will open and close the call and Bob will speak to segment performance and the financials midway through.
We'll then open the call to questions.
Although we believe these statements to be reasonable, our actual results could differ materially.
The most significant risk factors that could affect our future results are described in our annual report on Form 10-K.
We encourage you to review those risk factors as well as other key information detailed in our SEC filings.
With that I'd like to now turn over the call to Melinda Whittington, La-Z-Boy's President and Chief Executive Officer.
We are delivering on plan and controlling the controllables even in these times of significant widespread global supply chain disruption.
Across the La-Z-Boy enterprise, we delivered all-time record high sales of $576 million with sales 29% ahead of the pre-pandemic fiscal '20 second quarter.
Our business is much larger today than pre-pandemic, and we believe our momentum is sustainable.
We are poised to grow on this base of nearly $2.1 billion in trailing 12 month sales.
Also as expected, operating margins improved sequentially as our delivered sales for the quarter reflected pricing and surcharge actions taken to offset unprecedented rising raw material costs.
All in all, we are pleased with the momentum and growth we are experiencing during these challenging times.
Looking forward, demand continues to be strong across the enterprise and our backlog remains at all time highs, even as we continue to increase capacity to service our customers and consumers.
During Q2 of last year, businesses were just reopening and consumers were resuming furniture purchases.
At the time, written same-store sales for the La-Z-Boy Furniture Galleries network were unusually strong, up 34%.
Off that base, written same-store sales for the La-Z-Boy Furniture Galleries network decreased 6% in the fiscal '22 second quarter.
However, comparing this quarter to the pre-pandemic fiscal '20 second quarter written same-store sales for the La-Z-Boy Furniture Galleries network increased an impressive 26% for a compounded annual growth rate of 12% across the two years.
Similarly, while written same-store sales for our company-owned retail segment decreased 7% versus the unusual prior-year period written sales increased at a compounded annual growth rate of 12% across the last two years.
For Joybird, primarily an e-commerce business, it continued its strong growth trajectory accelerating to rate 56% more business this Q2 than in last year's second quarter and delivering an extremely impressive compounded annual growth rate of 40% across the last two years.
As we focus on addressing this strong ongoing demand and accumulated backlog, we continue to make strategic investments to increase capacity and improve capabilities and are producing more units than ever to service customers.
We're continuing to add manufacturing cells and now employ almost 40% more manufacturing personnel in pre-pandemic.
In Mexico, additional cells are coming online at our SLR facility and the first cells at our new [Indecipherable] plants are expected to begin operations in January, with that location of fully operational by fiscal year end.
And we continue to work to minimize supply chain disruptions from those associated with lack of component parts such as electronic chips to those inherent in hiring and training new workers until they reach normal productivity levels.
As we mentioned last quarter, where possible, our procurement team is significantly increasing inventory for key components to minimize disruption while also working to diversify our supply chain with multiple sources in various geographies to protect against continued supply chain volatility.
In addition, early in Q3, we acquired the Furnico upholstery manufacturing business in the UK.
Furnico has been manufacturing La-Z-Boy product for sale in the UK and Ireland since 2008.
This expansion of in-house manufacturing capability will provide greater certainty of supply to our customers in the UK and is a key step in building an integrated supply chain network for La-Z-Boy International.
Also during the quarter, we continued to return value to shareholders with a dividend payment and $15 million in share repurchases, bringing our total cash returned to shareholders in the first half of the year to $64 million across dividends and share repurchase.
And finally, we were pleased to announce last month, the expansion of our Board of Directors to 12 members with the addition of Erika Alexander, who serves as the Chief Global Officer, Global Operations for Marriott International.
Erika has held various leadership roles for several of Marriott's largest brands and will bring a wealth of operational experience perspective and expertise to La-Z-Boy.
Importantly, as we manage the current operational challenges across the business, we're also addressing the long term with our work on Century Vision, our winning strategy for growth through our Centennial anniversary in 2027 and beyond.
As I noted last quarter, Century Vision includes three key pillars.
The first is to leverage and reinvigorate the La-Z-Boy brand.
This includes leveraging the La-Z-Boy comfort message, a renewed focus on aging down the core consumer and accelerating our omnichannel offering.
To date, our marketing platform featuring Kristen Bell, has been successful in driving brand recognition including young -- including among younger consumers who say the La-Z-Boy brand is relevant to them.
Our objective is to build on this sentiment and last month we produced a new series of commercials that showcase how La-Z-Boy's range of products meet our consumers' needs.
At the same time throughout the course of Century Vision will expand the vibrant La-Z-Boy Furniture Galleries store base to approximately 400 locations across North America and will strengthen the entire network to remodels and relocations with some 30 projects on tap for this fiscal year.
While the purchase journey may start digitally, our consumers like to visit our stores to shop providing us with a great opportunity to deliver the flagship La-Z-Boy Furniture Galleries store experience.
Most importantly, our goal is to connect with consumers along their purchase journey through multiple means whether that's online or in person.
With respect to the Company-owned stores, we've become very successful running our retail business where we benefit from the integrated wholesale-retail margin.
We continue to acquire independent La-Z-Boy Furniture Gallery stores to round out our portfolio where it makes sense for us and the dealer.
We recently signed an agreement to purchase five stores in the Alabama and Tennessee markets from the retiring dealer that will be accretive as we quickly and seamlessly integrate them into our portfolio when we close the transaction later in the third quarter.
The second pillar of Century Vision relates to Joybird where we have a sustainably profitable direct-to-consumer model, an exciting and relevant brand with significant potential.
We are fueling Joybird to drive disproportionate profitable growth through an increase in digital marketing spend to drive awareness and customer acquisition, ongoing investments in technology and expansion of product assortment and additional small format urban stores in high traffic areas.
We are excited to open a new store in LA, this month and have an additional stores slated to open by the end of this fiscal year.
In markets where we have Joybird small format stores, we consistently see a geo lift in the online sales, demonstrating the appeal of an omnichannel model across all brands and retail formats.
We also recently opened a virtual store at Joybird's LA headquarters for online shoppers to chat, call and video conference into a dedicated retail environment which has proven to be very successful both in terms of consumer satisfaction and closing sales.
And the third pillar of Century Vision is to leverage and enhance our enterprise capabilities to support the growth of our consumer brands as well as enable the potential for tack-on acquisitions that can benefit from our supply chain expertise and accelerate the La-Z-Boy Incorporated growth story.
Strengthening digital capabilities across the entire La-Z-Boy enterprise and improving the agility of our supply chain, so that it can more broadly support all our customer brands will be key focus areas moving forward.
All in, as we execute Century Vision, we expect to grow the topline higher-than-industry averages and deliver double-digit operating margins.
We are proud of our near term results and excited for our future.
On a consolidated basis, fiscal '22 second quarter sales increased 25% to a record $576 million versus the prior year quarter, an increase sequentially from the fiscal '22 first quarter reflecting continued strong demand and ongoing capacity increases as well as the effects of pricing and surcharges.
Compared with the pre-pandemic fiscal '20 second quarter, sales were 29% higher for a compounded annual growth rate of about 14% over the last two years.
Consolidated GAAP operating income increased $54 million versus the prior year period and non-GAAP operating income increased to $52 million.
Consolidated GAAP operating margin was 9.4% and non-GAAP operating margin was 9% up sequentially from the first quarter.
GAAP diluted earnings per share was $0.89 for the fiscal '22 second quarter versus $0.75 in the prior year quarter.
Non-GAAP diluted earnings per share was $0.85 in the current year quarter versus $0.82 in last year's quarter.
My comments from here will focus on our non-GAAP reporting unless specifically stated otherwise.
I will now review our results by segment.
Demand for product across all businesses remains strong.
Starting with our wholesale segment, delivered sales for the quarter grew 28% to $439 million compared with the prior year period and increased 12% sequentially from Q1.
Compared with the pre-pandemic fiscal '20 second quarter, sales were 25% higher for a compounded annual growth rate of 12%.
Non-GAAP operating margin for the wholesale segment was 9.1% versus 12.2% in last year's second quarter, primarily reflecting higher raw material and freight costs, start-up costs for new facilities and labor challenges, partially offset by pricing and surcharges, fixed cost leverage on higher volume and lower marketing spend as a percentage of sales.
All in, we were pleased with the results and the progress we made sequentially from the first quarter operating margin of 4.7%.
Turning to the retail segment.
For the quarter, delivered sales increased 19% to $192 million.
Delivered same-store sales increased 17% versus the year-ago quarter.
Compared with the pre-pandemic fiscal '20 second quarter, delivered sales increased 30% for a compounded annual growth rate of 14%, again demonstrating the strength of the La-Z-Boy brand and our furniture gallery store system in this environment as well as ongoing strong execution at the store level with sales metrics positive across the board.
Non-GAAP operating margin increased to a second quarter record of 12.5% versus 9.4% in the prior year quarter, driven primarily by fixed cost leverage on the higher delivered sales volume as well as expense management.
Sales for Joybird which are reported in corporate and other increased 37% to $40 million versus the prior year quarter.
On a two-year basis, compared with a -- the pre-pandemic fiscal '20 second quarter delivered sales increased in impressive 93% for a compounded annual growth rate of 39%, reflecting the momentum Joybird is building and the direct to consumer marketplace as we continue to acquire customers and strengthen brand awareness through new digital marketing channels.
For the quarter, Joybird increased both its web and in-store traffic, conversion and average ticket.
Joybird's sustaining profitability and with a focus on accelerating disproportionate growth, we will continue to invest in Joybird marketing to drive broader brand awareness and customer acquisition.
Pulling all of this together, consolidated non-GAAP gross margin for the entire Company for the fiscal '22 second quarter decreased 500 basis points versus the prior year quarter, primarily driven by significant increases in raw material and freight costs, start-up costs associated with the expansion of our manufacturing capacity and labor challenges in our wholesale businesses.
These items were partially offset by pricing and surcharges in our wholesale business.
Consolidated non-GAAP SG&A as a percentage of sales for the quarter decreased 280 basis points, primarily reflecting fixed cost leverage on the higher sales volume, mainly in our retail segment as well as lower marketing spend as a percentage of sales.
Our effective tax rate on a GAAP basis for the fiscal '22 second quarter was 26.6% versus 26% in the second quarter of fiscal '21.
Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes.
We expect our effective tax rate for the full fiscal '22 year to be between 25.5% and 26.5%.
Year-to-date, we generated $15 million in cash from operating activities.
We ended the period with $297 million in cash and no debt and held $31 million in investments to enhance returns on cash.
Year-to-date, we invested $59 million and higher inventory levels to protect against supply chain disruptions and support increased production and delivered sales.
We also spent $33 million in capital year-to-date, primarily related to improvements to our retail stores, plant upgrades at our manufacturing distribution facilities, new upholstery manufacturing capacity in Mexico and technology upgrades.
As a note, last month we entered into a new five-year $200 million unsecured revolving credit facility which replaced our $150 million ABL facility.
The new facility has a $100 million accordion feature, allowing us to expand our borrowing capacity to support future growth.
It also provides the option to request to extend the term beyond five years for two additional periods of one year, each.
Borrowings under the facility may be used for general corporate purposes and working capital.
As of today, we have no borrowings against the facility.
Regarding cash returned to shareholders, during the quarter, we continued to buy back shares, spending $15 million repurchasing more than 400,000 shares of stock in the open market leaving 8.6 million shares in our existing authorized share repurchase program.
Year-to-date we have returned $51 million to shareholders via share repurchase.
We also paid $6.6 million in dividends to shareholders in the second quarter.
And subsequent to quarter end, demonstrating its confidence in the Company's long-term growth prospects, the Board of Directors increased the regular quarterly dividend by 10% to $0.165 per share.
As we looked at the future, from a capital allocation perspective, over the long term, we will target to invest roughly half of operating cash flow back into the business via capex and M&A and return the remainder to shareholders via dividends and share repurchases.
Before turning the call back to Melinda, let me highlight several important items for the remainder of fiscal 2022.
As noted, demand trends were strong across the business and remain significantly higher than pre-pandemic levels with the high backlog and plants for a continued increase in capacity as new assembly cells come online, we expect a strong year of shipments.
Accordingly, we expect to continued increase in production capacity, particularly in Q4.
Raw material and freight costs remain high and global supply chain disruptions continue.
Industry experts predict it will take multiple quarters before we see resolution of the West Coast shipping backups.
Electronic chip shortages continue which impact our power furniture.
Across multiple areas, we expect to face continued supply chain disruptions with respect to having all component parts available to finished units and complete orders, particularly for our Company-owned retail segment, which tends to disproportionately sell our higher end products.
Given the COVID-related shutdown of Vietnam, we expect our case goods business to experience a significant temporary decline in sales and margin in the third quarter reflecting a delay in shipments as manufacturing facilities restart there and product gets on the water.
Finally, we will continue to monitor the escalating freight environment to determine if further pricing actions needed.
Pulling all this together, we are actively managing supply inputs and recognize that we will likely continue to experience uncertainty and disruption for the foreseeable future, particularly in the third quarter.
Quarterly trends will also be impacted by our third and fourth quarters containing 12 and 14 production weeks respectively compared to 13 production weeks in our second quarter.
Recall fiscal 2022 will include 53 weeks of results.
Taking all of these factors into consideration, we expect sales and margin in Q3 to be similar to Q2 and expect sales and margin to accelerate in the fourth quarter to enable consolidated La-Z-Boy results to finish the fiscal year with a full year non-GAAP operating margin at or near double digits.
Finally, as we make investments in the business to strengthen the Company for the future, including work related to our Century Vision strategy, we expect capital expenditures to be in the range of $75 million to $85 million for fiscal '22.
Spending will support updating our La-Z-Boy Furniture Gallery stores; updates to our plants and distribution facilities in Neosho, Missouri; new upholstery manufacturing capacity in Mexico; and investments and technology solutions across the organization.
I'm extremely proud of our organization and our business partners for delivering these strong results in very challenging times.
The team is doing a great job navigating the uncertain environment and is setting us up for strong business growth as we move forward both in the near term and as we execute our Century Vision.
The best is yet to come for La-Z-Boy Incorporated as we deliver profitable growth and long-term value for all stakeholders.
We'll begin the question-and-answer period now.
Matt, please review the instructions for getting into the queue to ask questions.

user
q2 non-gaap earnings per share $0.85.
q2 sales rose 25 percent to $576 million.
q2 gaap earnings per share $0.89.
continue to expect sales and margin momentum to accelerate, particularly in q4.
continue to expect to deliver full-year consolidated operating margin at or near double digits.
qtrly retail segment delivered same-store sales increased 17% in fiscal 2022 q2 versus year-ago period.

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