La-Z-Boy Inc

NYSE:LZB

Earnings Call Analysis

La-Z-Boy Reports Strong Q2 Performance

In a testing economic climate, La-Z-Boy reported a robust second quarter, with $511 million in sales reflecting a 14% rise from the pre-pandemic period, although down 16% year-on-year due to the prior year's pandemic backlog. The company's non-GAAP operating margin reached 7.9%, surpassing their own forecasts, while non-GAAP EPS fell by 30% to $0.74 from the previous year but went up by 42% compared to the pre-pandemic landscape and exceeded expectations. Despite a home furnishings industry slowdown, La-Z-Boy achieved a 1% increase in written same-store sales and maintained flat sales in company-owned stores. Joybird, their e-commerce brand, saw written sales jump by 5% and anticipates future growth. La-Z-Boy's strategic retail acquisitions contributed to their top-line trends, with company-owned retail segment written sales increasing by 3% year-on-year.

Strategic Brand Positioning and Growth Focus

The company showcased its 'Long Live the Lazy' brand campaign aimed at connecting with cultural conversations around relaxation and well-earned respite across various life stages and home styles. In parallel, they are fine-tuning Joybird for a blend of sales growth and profitability, as they see significant growth potential for the brand, with prudent plans to return the brand to profitability, aided by store expansions with 25 potential locations identified for the intermediate term.

Optimizing Global Supply Chain and Operations

To further increase efficiency and cost-effectiveness, the company has taken steps to optimize the global supply chain by shifting production and closing certain operational facilities. The benefits from these supply chain adjustments are expected to start accruing in fiscal 2025.

Financial Performance - Sales and Profitability

There was a significant 16% decline in the fiscal '24 second-quarter sales, dropping to $511 million, with GAAP operating income decreasing to $34 million and non-GAAP operating income standing at $41 million, both figures experiencing a considerable decrease compared to last year's second quarter. This decline in profitability also extended to per share earnings, with GAAP diluted EPS coming in at $0.63 compared to $1.07, and retail non-GAAP diluted EPS at $0.74 versus $1.05 in the prior year quarter.

Segment Performance - Retail and Wholesale

The Retail segment's sales witnessed a 15% decrease to $214 million, and the non-GAAP operating margin declined to 13%. While gross margins improved due to previous pricing actions, they were more than offset by higher SG&A as a percentage of sales on a lower delivered sales volume. The Wholesale segment also faced a decline, with sales falling to $365 million, an 18% decrease, and non-GAAP operating margins reducing to 7.7%, compared to 8.6% in the previous year's second quarter. Gross margin improvements were negated by increased marketing investments and fixed cost deleveraging related to lower sales volumes.

Liquidity and Shareholder Returns

The company ended the quarter with a strong cash position of $333 million and no externally funded debt. They invested heavily in retail store openings, remodels, and manufacturing and distribution facility upgrades, while also returning $18 million to shareholders through dividends and share repurchases. The Board of Directors increased the regular quarterly dividend by 10%, now distributing a $0.20 per share dividend, signaling confidence in the company's long-term prospects.

Outlook and Guidance

Looking ahead, the company anticipates third-quarter fiscal '24 sales to be in the range of $515 million to $535 million, with non-GAAP operating margins expected to range from 7% to 8%. Capital expenditures for fiscal '24 are projected to be between $60 million to $70 million as part of strategic investments aligned with the company's Century Vision strategy, aiming for long-term growth that outpaces industry growth rates with the target of achieving double-digit operating margins over the long term.

Earnings Call Transcript 2024-Q2

[Operator]

Greetings and welcome to the La-Z-Boy Fiscal 2024 Second Quarter Conference Call. [Operator Instructions] Please note this conference is being recorded.I will now turn the conference over to your host, Mr. Mark Becks, Director of Investor Relations and Corporate Development. You may begin.

[Mark Becks, executive]

Thank you, Jenny. Good morning, everyone, and thank you for joining us to discuss our fiscal 2024 second quarter. With us today are Melinda Whittington, La-Z-Boy's President and Chief Executive Officer and Bob Lucian, La-Z-Boy's SVP and CFO. Melinda will open and close the call and Bob will speak to segment performance and the financials midway through. We will then open the call to questions.Slides will accompany this presentation and you may view them through our webcast link, which will be available for 1 year, and a telephone replay of the call will be available for 1 week beginning this afternoon. Before we begin the presentation, I would like to remind you that some statements made in today's call include forward-looking statements about La-Z-Boy's future performance and other matters.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 these risk factors as well as other key information detailed in our SEC filings. Also, our earnings release is available under the News and Events tab on the Investor Relations page of our website, and it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck.With that, I will now turn the call over to Melinda Whittington, La-Z-Boy's President and Chief Executive Officer. Melinda?

[Melinda Whittington, executive]

Thanks, Mark. Good morning, everyone. Yesterday, following the close of market, we reported results for our October ended second quarter. We delivered sales in line with the high end of our guidance, and non-GAAP operating margins exceeded guidance ranges issued last quarter, despite an increasingly challenging macro environment, and continued soft home furnishings industry. These results were achieved via strong execution in both our retail stores and across our manufacturing supply chain, which has led to continued market share gains. Highlights for the quarter included consolidated delivered sales of $511 million, up 14% versus our most recent pre-pandemic second quarter, but down 16% versus the prior year as expected, which benefited from delivering the above-normal pandemic backlog. Total La-Z-Boy Furniture Galleries network written same-store sales growth of 1% positive and flat written same-store sales for our company-owned retail stores. Non-GAAP gross margin improvement in both our retail and wholesale segments, and total consolidated non-GAAP gross margin improvement of 340 basis points year-on-year.Non-GAAP operating margin of 7.9%, above our guidance range, but down from a year ago, given deleverage on the delivered sales decline. Non-GAAP EPS of $0.74, a 30% decline from the same period last year, but 42% greater than pre-pandemic fiscal '20 and above our expectations. The launch of our new brand campaign, Long Live the Lazy that, has had early success with our expanded target consumer and is contributing to strong conversion levels. And finally, continued progress against our Century Vision growth strategy, including the expansion of our retail business with the opening of 2 new stores and the acquisition of 1 independent La-Z-Boy furniture gallery store. Our company-owned retail store base now represents, just over 50% of the entire La-Z-Boy Furniture Galleries network.The overall home furnishings industry is in a continued slowdown with year-over-year declines in category spending. Consumers continue to deemphasize discretionary spending on durables, as they adjust to higher interest rates and housing turnover continues to decline on a year-over-year basis. Despite these challenging consumer traffic trends, our La-Z-Boy Furniture Galleries network grew written same-store sales 1%, and company-owned stores held same-store sales flat versus a year ago.With our ongoing efforts to build a more agile supply chain, along with disproportionately growing our retail business, where we have greater control over the end-to-end brand experience, we are positioning our business to continue driving profitable growth over the long-term. La-Z-Boy has been a trusted brand throughout our nearly 100-year history, and we are encouraged with our progress, particularly given the challenges across the broader furniture industry. We continue to take a long-term approach to investing in our business and remain confident in our ability, to drive performance that outpaces the industry.Additionally, should sales and traffic headwinds persist longer than anticipated, we have the proven ability to manage our cost structure. And finally, our vertically integrated model and the disproportionate growth of our direct-to-consumer business, which now contributes nearly half of our total company sales, comes with a structurally higher margin and will support continued investment into the business as well as improvements in profitability.Highlighting our ongoing top line trends, total written sales for our company-owned Retail segment were up 3%, versus last year's second quarter. This growth in written sales was attributed mainly to acquisitions of independent furniture gallery dealers in the quarter. Written same-store sales for our company-owned Retail segment in the second quarter held essentially flat versus the prior year, even in the challenging consumer environment.Our Long Live the Lazy brand campaign, has produced strong early results in driving more productive traffic to stores and in-store execution remains solid with strong conversion and higher design sales. And we have sharpened some of our opening price points as raw materials and freight expenses normalize. Our written same-store sales were buoyed in August with strong Labor Day performance, but weakened during the balance of the quarter as traffic trends slowed, particularly in October, consistent with our industry. That said, we have had a solid start to the holiday season in November.Against the backdrop of a 9% industry contraction during the second quarter, our 3% increase in total written sales, indicate continued market share gains. As noted, across our entire La-Z-Boy Furniture Galleries network of 353 stores, written same-store sales grew 1% for the quarter even against this challenging backdrop.Turning to Joybird. Written sales turned positive in the second quarter, up 5% versus a year ago as we lapped year ago Labor Day when Joybird trends fell significantly, consistent with most e-commerce furniture businesses, and exacerbated by short-term marketing execution issues. Our renewed marketing execution is now efficient and resonating with consumers to build brand awareness. And while Joybird posted a small loss for the quarter as expected, the focus on managing both sales and profitability, has led to a notable improvement in operating performance, and we remain optimistic about the prospects for the brand returning to both top and bottom line growth over the medium-term.I also want to take some time to discuss the long-term focus we have for our business, and give an update on the progress we made against our Century Vision objectives during the quarter. Recall, Century Vision is our strategic framework for setting up La-Z-Boy Incorporated, for our next 100 years as we celebrate our first Century in 2027. This is measured by our intention to grow top line at a pace double the market and deliver consistent double-digit operating margins over the long-term. First, we continue to grow and update our La-Z-Boy Furniture Galleries network and our company-owned retail portion of that network through new stores, acquired stores and remodels, to provide an outstanding end-to-end consumer experience.Company-owned stores now total 177, and for the first time in our history, represent just over half of our entire network, reflecting the impressive journey our retail business has been on over the last decade. We continue to see potential for up to 400 stores across the entire network in the intermediate term, a potential incremental 13% to our total network.During the quarter, we opened 2 new stores, and we completed the acquisition of 1 independent La-Z-Boy Furniture Galleries store in Lafayette, Louisiana. And in October, we signed an agreement to acquire an additional 6 store network from an independent La-Z-Boy Furniture Galleries dealer in the Midwest, scheduled to close in our third quarter.As a reminder, these store acquisitions are immediately accretive to our profitability, and allow the company to benefit from the integrated wholesale retail margin. As we grow our company-owned retail, our vertically integrated supply chain, will become a more meaningful differentiator versus competitors in the industry as we are uniquely able to understand the consumer and then deliver custom furniture with strong speed to market. We are actively leveraging the discipline of our team and the strength of our balance sheet to drive continuous improvements in offering greater value for our customers. These competitive advantages position us to continue to grow our business over the long-term.Second, on Century Vision, we are refining our brand channel strategy, to expand the distribution and availability of La-Z-Boy products in additional compatible outlets to meet our consumers with the right products, wherever they prefer to shop. As one example, last quarter, we announced a new partnership with Rooms To Go, a top 10 furniture retailer with a focus on Southwest and Southeast U.S. markets, with a selected assortment of La-Z-Boy recliners. While early, this partnership is off to a good start, and we look forward to reaching more consumers through strategic partnerships.Third, we're excited about the potential of our new Long Live the Lazy brand campaign. In the quarter, we activated a new marketing strategy, leveraging database consumer insights and our brand heritage, of comfort and quality to connect with a broader consumer base. Our goal is to build top-of-mind awareness, relevance and updated perceptions of the brand.What makes us excited about our Long Live the Lazy brand campaign? It connects to cultural conversations and momentum, celebrating the value of earned rest and relaxation in our busy lifestyles. It reflects real life, lived in rooms and well-loved homes across a variety of situations, life stages and home styles in, which people can see themselves. We leverage knowledge of consumers' rest and relaxation habits to connect such as listening to music, or a podcast, gaming, watching the news, or the big game, and we will show up consistently across all touch points on the consumer journey to build familiarity and trust.And next, Joybird. We continue to optimize Joybird to deliver a balance of sales growth and profitability. We view Joybird as an opportunity, to increase our omni-channel presence for consumers. The brand continues to have significant opportunity to grow share, which will be our focus as we make prudent choices to return to profitability. Joybird currently operates 12 stores, with the recent opening of a new store in Portland, Oregon, and we have identified a total of 25 potential locations over the intermediate term, with our expansion pace depending on opportunities in real estate and the overall business environment.And finally, on Century Vision, we continue our progress on building a more agile business model. Now that we have been able to successfully lower our unprecedented backlog to a more normalized level and are meaningfully improving plant productivity, we recently made decisions to further optimize our global supply chain. As part of this initiative, we are shifting upholstery production from our Ramos, Mexico operations to our other existing upholstery plants. And then relocating a portion of our cut and sew operations back to Ramos, Mexico resulting in the permanent closure of our leased cut and sew facility in Parra, Mexico.Action taken to realign Mexico operations, will be completed by the end of the fiscal, with benefits accruing in fiscal '25. This strategic decision is made possible, through continued productivity improvements achieved across our remaining plant networks.Now let me turn the call over to Bob to review the financial results in more detail. Bob?

[Robert Lucian, executive]

Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe non-GAAP presentation better reflects underlying operating trends and performance of the business. Non-GAAP results exclude items, which are detailed in our press release and in the tables in the appendix section, of our conference call slides.On a consolidated basis, fiscal '24 second quarter sales decreased 16% to $511 million versus the prior year quarter, primarily reflecting lower delivered unit volume, versus last year's backlog shipments. This quarter's sales results represents a 14% increase versus the most recent non-pandemic second quarter. As a reminder, we previously called out that last fiscal year, benefited by an approximately $300 million increase in delivered sales, due to the delivery of backlog of COVID-related furniture orders, which will not repeat this year.While we did not call out backlog explicitly across the quarters, the first half saw a more pronounced impact against backlog sales. As such, we expect year-over-year delivered sales comparisons, to improve over the back half of the fiscal year. Consolidated GAAP operating income decreased to $34 million and non-GAAP operating income was $41 million, a decrease of 34% versus last year's second quarter.Consolidated GAAP operating margin was 6.6% and non-GAAP operating margin was 7.9%, reflecting a 210 basis point decline versus last year, due to fixed cost deleverage on lower delivered sales. GAAP diluted EPS was $0.63 for the second quarter versus $1.07 in the prior year quarter. Non-GAAP diluted EPS was $0.74 in the current year quarter versus $1.05 last year.As I move to the segment discussion, my comments from here will focus on our non-GAAP reporting, unless specifically stated otherwise. Starting with the Retail segment for the quarter, delivered sales were $214 million, a 15% decrease over the prior year second quarter, which benefited from higher deliveries of backlog.Importantly, sales were 44% higher than our fiscal 2020 second quarter, a 10% compound annual growth rate improvement over the 4 years. Retail non-GAAP operating margin, decreased to 13% versus 16.5% in the prior year quarter. Gross margin improvements from prior period pricing actions, were more than offset by higher SG&A, as a percentage of sales, with fixed cost deleverage on a lower delivered sales volume.This non-GAAP operating margin result was 720 basis points higher than fiscal 2020 second quarter pre-pandemic result, reflecting significant sustainable improvement in store execution and fixed cost leverage due to the overall growth of the retail business.For our Wholesale segment, delivered sales for the quarter declined to $365 million, an 18% decrease, versus the prior year period, which benefited from pandemic backlog production and deliveries. Non-GAAP operating margin for the Wholesale segment was 7.7%, versus 8.6% in last year's second quarter, reflecting strong gross margin improvement, more than offset by SG&A deleverage on lower sales.Gross margin improved with benefits from lower raw material pricing and duty expense. This was more than offset by fixed cost deleverage and increased marketing investments to support the launch of our Long Live the Lazy brand campaign. Joybird reported in Corporate and Other recorded delivered sales of $32 million, a 15% decrease versus the prior year quarter. The decline was driven by lower unit volume, from more cautious consumer demand, compared to earlier in the prior year. Additionally, we recently opened our 12th Joybird store in Portland, Oregon in November.We remain committed to growing the brand over the longer term, and we'll continue to maintain our disciplined approach, as we work to balance growth and profitability. Pulling all of this together for the quarter, consolidated non-GAAP gross margin improved across all businesses and for the entire company improved by 340 basis points versus the prior year second quarter.Primarily due to lower raw material and duty costs, partially offset by selective pricing and promotional actions. While SG&A non-GAAP expense dollars decreased year-over-year, non-GAAP SG&A as a percentage of sales for the second quarter increased by 550 basis points, compared with the same period last year, primarily due to sales deleverage, against last year's backlog-driven top line results.Our effective tax rate on a GAAP basis for the second quarter was 26.5%, compared to the 25.8%, for the prior year period. Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes. We expect our effective tax rate to be in the range of 26% to 27% for fiscal '24.Turning to cash. For the quarter, we generated $31 million in cash from operating activities. Solid cash generation in the quarter, was primarily driven by profit performance. Through the first 2 quarters, cash flow from operations -- was $57 million, 84% higher than last year's comparable period. We ended the quarter with $333 million in cash and no externally funded debt.We spent $13 million in capital expenditures during the quarter, primarily related to retail store openings and remodels, as well as upgrades of our manufacturing and distribution facilities. We also spent $2 million on the acquisition of one independent La-Z-Boy Furniture Gallery store in Lafayette, Louisiana.In the second quarter, we returned $18 million to shareholders, including $8 million paid in dividends. We repurchased 326,000 shares in the quarter, which leaves 6.6 million shares available, under our existing share repurchase authorization. Subsequent to quarter end, reflecting the confidence in the company's long-term growth prospects, the Board of Directors increased the regular quarterly dividend by 10%.This takes our quarterly dividend to $0.20 per share. We view share repurchases and our dividend as an attractive use of our cash and positive return to shareholders. Recall our capital allocation strategy is to invest approximately 50% of operating cash flow back into the business with the balance return to shareholders. In the near term, we have numerous strategic investments to make, as we execute Century Vision and anticipate capital allocation, to be more heavily weighted to investments in the business, where our ROIs are 2x our cost of capital.Before turning the call back to Melinda, let me highlight several important items for fiscal 2024, and our third quarter. Consistent with our central vision strategy -- Century Vision strategy, excuse me, we continue to target sales growth, double the industry growth rate and double-digit operating margins over the long-term.We expect sales in the third quarter of fiscal '24, to be in the range of $515 million to $535 million and non-GAAP operating margin, to be in the range of 7% to 8%. We anticipate non-GAAP adjustments, for purchase accounting charges for the year, to be in the range of $0.01 to $0.03 per share. We expect capital expenditures to be in the range of $60 million to $70 million for fiscal '24 as we invest to strengthen the company for the future, consistent with our Century Vision strategy.And finally, presuming no significant worsening in macroeconomic trends, we continue -- we expect to continue share repurchases, at dollar levels consistent with pre-COVID repurchase activity.And now I will turn the call back to Melinda.

[Melinda Whittington, executive]

Thanks, Bob. We delivered on our objectives in the quarter with many wins, including a new brand campaign launch, positive written same-store sales, sequential improvement in our delivered sales results, and growth in our company-owned retail store base, which is now just over 50% of our total network. We are engaging with an even broader consumer than we have in the past.And although the macroeconomic environment remains challenging, we will continue to focus on driving our business, focusing on the consumer, and continuously improving our execution. We have every intention of growing from our -- post-COVID base, gaining share and believe the best is yet to come as we deliver long-term profitable growth and returns to all stakeholders.I want to thank the entire La-Z-Boy Incorporated team, for their ongoing dedication and for yet another quarter, of strong results even in a challenging environment. I wish you all a happy and healthy holiday season. Thank you for your time this morning.And with that, I'll turn it back to Mark.

[Mark Becks, executive]

Thank you, Melinda. We will begin the question-and-answer period now. Jenny, please review the instructions for getting in the queue to ask questions.

[Operator]

[Operator Instructions] Our first question is coming from Brad Thomas of KeyBanc Capital Markets.

[Bradley Thomas, analyst]

Congratulations on a good quarter here. Melinda first, I was - first I just want to pick up with the strong performance, particularly relative to the industry and what you're seeing on the written front. And maybe this is kind of two parts. I mean, first, I was hoping you could just talk a little bit more about your own network and what you think is best driving results. And maybe if you could also speak to, some of the wins that you've had within third parties? And how much of this is just your own execution versus perhaps some of the bankruptcies that have been reported in the industry and the disappearance of competitors?

[Melinda Whittington, executive]

Yes, a couple of thoughts there. First of all, with in our Furniture Galleries and particularly our company-owned Furniture Galleries, we've been on a really strong execution march for quite a few quarters now, where with the traffic that is coming in the door. What we're doing in the way of design, sales in the way of conversion rates of average ticket, the blocking and tackling.We just continue to get better there in very -- in very database for blocking and tackling ways and that trajectory continues. The second thing is the power of the brand and we do believe along with the Lazy campaign, has begun to affect that and we'll continue to get stronger over-time, obviously, long purchase cycles and so that's a long process.But we believe that the consumer coming in is excited about the La-Z-Boy brand and is ready to buy, and that kind of speaks to that whole brand campaign is, again very data based around speaking to a broad set -- a broader set of consumers than in the past, but consumers that are really going to resonate with our brands, quality and comfort that, we've been known for almost 100 years.And then last but not least to your point on, definitely -- it's a tough industry out there and in our highly fragmented market there's been, a decent number of both manufacturers and retailers that are leaving the business. And so, we're opportunistic about that, right? And even across some of our, not just our La-Z-Boy brand, but across some of our other smaller brands.We're making sure that we're mobilizing, to help retailers that have lost, some of their supply sources, as manufacturers have gone out and to make sure that, again, we're really playing offense from a retail and a consumer standpoint that, we're playing offense on our brands, to make sure we are top-of-mind for consumers, so if other channels close up, they're looking at us.

[Bradley Thomas, analyst]

That's helpful. And then, Melinda, just to follow-up -- on the cadence of the business, you did touch on this I think in the remarks, but we sort of widely heard that October was a soft month. You referenced things improving in November, any more commentary you can share about how November has been trending for you and your optimism for this holiday season?

[Melinda Whittington, executive]

Yes, we've certainly seen even if you look-through what would be our Q2 August-September-October as we mentioned in prepared remarks, Labor Day looked like there was, some decent strengthening and them October I think across the industry was challenging.Early reads, it's still very early on, on the holiday season, which for all industries kind of spreads over a couple of weeks if not months now. So we were pleased with what we saw in the early days of the holiday season, and I think we're just going to continue to see kind of, a bumpy consumer experience here for a while.So, we're focused on executing against, those consumers that are still willing to buy and it does help that, we're a little more upper-middle income consumer. So they are always going to be, a little less affected, by some of these economic challenges.

[Operator]

Your next question is coming from Anthony Lebiedzinski from Sidoti & Company.

[Anthony Lebiedzinski, analyst]

Yes. First, just to follow-up on Brad's question about, as far as design sales and average ticket. Is there any way you guys can share any quantifiable metrics on that as far as -- how much of your revenue comes from in home design nowadays? And maybe any sort of comments on the average ticket?

[Robert Lucian, executive]

Yes, Anthony, right now, we've been increasing this as continued a slow march, if you will, but it's a march -- continued march up, we're now around 30% design sales and that's continuing to increase. We continue to see year-over-year improvements in that metric, as the stores execute extremely well with the consumers, who are coming in -- at the shop there.And then -- from an average ticket perspective, we're also seeing slight increases there, particularly with the higher design sales, we're seeing folks buying more product. And those are two -- of the reasons that Melinda also added, to the other ones relative to what we're doing in the store, as well as what we're doing from a brand perspective that are enabling our retail stores, to outperform what we believe, is outperformed the industry in general.

[Anthony Lebiedzinski, analyst]

All right. And then, in terms of the guidance for Q3, is this mostly volume driven, as far as the sales decline from last year. How should we think about pricing? I know it was a bit of a factor in Q2, but just overall, just wanted to get a better understanding as how you're thinking about the volume versus pricing dynamics?

[Robert Lucian, executive]

The pricing is pretty much in -- we pretty much lapped all the price increases that we've taken. There has been some promotional -- orders for opening price point, sharpening and things like that, that we've done. We've seen some improvements in mix and accommodation of those things, is how we're kind of thinking about, the kind of year-over-year from a unit perspective.Things are, I'd say, flattish with some benefit from the mix of the business we have from a retail versus wholesale, as well as the mix of some of the products that, we're selling in the Retail segment.

[Anthony Lebiedzinski, analyst]

Got it. And then, as you called out part of Century Vision strategy is to get to double-digit operating margins, you made some changes to your supply-chain here as of this last quarter staying agile as you like to say. So I mean can you guys -- do you think you can get back to double-digit operating margins even if revenue will be below peak levels that you had in fiscal 2022?

[Robert Lucian, executive]

Yes, our plan will be to get our sales above those peak levels with all of the work that, we're doing from a Century Vision strategy perspective. That includes all the work we're doing on the retail side relative to acquisitions, new-store openings and just continued execution of the store to drive same-store sales. All the channel expansion strategy that we've got right now is delivering.We're getting into new customers, and we're delivering incremental volume from that. So with all of those going on and then eventually we will see the consumer come back in and start shopping, because the economy will get better. The housing market will improve and people will start kind of -- we'll see the industry come back from that perspective.A combination of all those things, will indicate that we're going to be over that, the peak that we hit during COVID, question of when that's going to happen. It's a function of the macroeconomic environment, but we're working on all the things that we can work on, to make that happen. And as we're doing that, we're doing a lot of work, particularly on the wholesale side.Bring that business back up into the 10% margin area that it was pre-pandemic. We're getting more efficient in our plants, we just took a decision relative to closing -- a facility, because of the productivity improvements we've seen in the U.S. plants. We were able to absorb all that volume into those plants.So, it's not something is going to happen next quarter, but overtime we're going to continue to move that, the wholesale business up to that 10%, and we'll continue to execute well on the retail side and that's the -- that's the formula if you will, for getting to the consistent double-digit margins.

[Operator]

[Operator Instructions] Our next question is coming from Bobby Griffin of Raymond James.

[Robert Griffin, analyst]

I guess, Bob, I want to circle back on the restructuring and hopefully maybe we can unpack the changes a little bit more and maybe talk about what do you think that opportunity can do to the wholesale margins? And then I guess as the second part of that question is, when you look back versus pre-pandemic, so not the prior, not the pandemic peak, but going back to call it like FY '19. What are the biggest two or three drivers and the difference between wholesale being 10% and now wholesale being 7% or 8% margins?

[Melinda Whittington, executive]

I'll start, Bobby, if you look at what we did over the last 3 years when there were so much supply chain disruption and then at one point, we were at kind of a 6 to 9 months backlog. What we did is prioritize getting our consumers and our customers' service. And as you know, our production processes is an artesian process. It's people with hands, putting together fabric and foam and steel and wood.And so, we opened up quite a few leased facilities to essentially get the people and the processes in-place to service that backlog. As the dust has settled now, that's giving us the opportunity to look at that, get back to the blocking and tackling work that we've had for many years around being super productive, and get our existing plants back on-track with less disruption.So with that, that enables us to start to, it's never -- easy to be clear to close locations, right, those -- that impacts people. But we're making those tough choices and closing down some of those leased facilities and all as the rest of our network, kind of gets back to the excellent productivity levels that they've had in the past.So, I think that's the biggest single piece is somewhat managing through the disruption now and then designing that footprint of the future that, meets our consumer needs and our customer needs for the long-term, at the sort of strategic level.

[Robert Griffin, analyst]

Okay. And then, Bob, I think you touched on it a little bit in your remarks about improving the efficiency, but just any color on kind of where we are versus historical efficiency on an output per, I don't know output per employee, or any type of metrics you guys look at that, kind of help us think about this sequentially building, because I believe that is probably one of the biggest drivers of getting wholesale margins back, to double-digits, right?

[Robert Lucian, executive]

It is -- it's a combination of the productivity as well as -- like the decision that we just made. We should get at least 50 to 60 basis-points of improvement next year versus this year due to that restructure that, we just announced. Again, it's not going to start until next year, because it's going to take 3 months or 6 months for us to go off, and -- get completed. It will be completed by the beginning of fiscal 2025.But the -- it's going to be, that coupled, there's -- no one single that just a worker productivity piece of it, there is work that we're doing relative to how we are scheduling our plants, what products are being made in our plants. We're doing work on our delivery expense and our delivery network and how we do that. So we were tackling every single aspect of our supply-chain cost structure via program we call transform.And that program is turning over every rock, making improvements in a number of different areas. So it's hard to quantify just one thing for you to say, okay, our productivity is so many sofas per shift for whatever and then it's going to be up by 10% and that kind of thing, I don't know if that's what you're looking for or not.

[Robert Griffin, analyst]

No, that's helpful, the basis point improvement based on restructuring is helpful to yes. And I guess the last side of things is, what is the -- change do from a capacity standpoint?. Hopefully one day, we're going to get back to a point where industry is growing again. I'm hopeful that's going to happen sometime. But what does it do from a capacity standpoint if we get back into a nice type of recovery?

[Melinda Whittington, executive]

Yes, our focus is absolutely making sure we can service those incoming order rates and to your point, eventually there's going be a tailwind here, right, on top of all the good work to drive demand. And so, that's part of our overall equation is to make sure we've got the headroom for, when we see order rates pick back up significantly. And importantly, our supply-chain will remain agile.So over time, the potential for expansion in existing -- of our existing footprint is something we're always looking at to make sure, not just that we've got enough capacity, but that it's in the right locations, furniture are big pieces to move around. So you want to make sure that footprint is in the right place, relative to where your customer base is too.

[Robert Griffin, analyst]

And then, congrats on getting the agreement to acquire the 6 Midwest stores. Are the conversations changed any, or happening more frequently with some of the independent Galleries given some of the headwinds the industry has been facing, or is it still kind of, as we've always talked about historically kind of ebb and flow basis, of a timing you can't really predict?

[Melinda Whittington, executive]

We've talked over the last couple of years about being a little more strategic in those conversations on our end, rather than kind of waiting to see if someone knocks on the door, making sure we're proactively partnering with our long-term independent Furniture Gallery owners so that they know we're here, if they're interested in what that would look like for them financially. So we have been definitely more strategic in those conversations in recent years.I wouldn't say anything given the economy is really changing right now, simply for the most part, as you saw in the results for the last couple of quarters, La-Z-Boy Furniture Galleries broadly are performing well on the strength of the brand and the product offerings. And so, you're not seeing that like you might see mom-and-pops that are general dealer type, selling a lot of different brands struggling more.

[Operator]

Well, we don't appear to have any further questions in the queue. I will now hand back over to the management team for their closing comments.

[Mark Becks, executive]

Thanks, Jenny. Melinda, Bob and I will be in our office to take any follow-up questions we didn't get to on the call. Have a great day.

[Operator]

Thank you very much, everyone. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.