Anthony Lebiedzinski • Sidoti & Company, LLC

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CEO Melinda Whittington stated there were no significant geographic shifts in the U.S. but noted pricing actions in Canada impacted unit volume. She clarified that the strategic review of non-core assets focuses on businesses like case goods and international operations, while reaffirming commitment to the core La-Z-Boy brand and retail expansion. Whittington also confirmed the company will proceed with its store opening and distribution transformation plans, leveraging its strong balance sheet. CFO Taylor Luebke described the case goods promotions as a transitory Q1 effort to clear inventory and optimize assortments for the upcoming holiday season.

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President & CEO Melinda Whittington attributed the sales beat to strong, broad-based execution, noting that February was the quarter's most challenging month. SVP and CFO Taylor Luebke stated that the company has a playbook to mitigate tariff impacts through sourcing, inventory management, and nominal, low-single-digit price increases that have already been implemented. Regarding Joybird, Melinda Whittington confirmed the potential to exceed the 25-store goal long-term but stressed a prudent current pace of 3-4 new stores per year.

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CEO Melinda Whittington responded that there were no dramatic regional differences in sales trends. CFO Taylor Luebke attributed the higher retail expenses and slight margin compression to the ramp-up costs of opening six new stores over the last two quarters and higher sales commissions from a strong holiday period. On tariffs, Luebke explained that the company has developed a playbook for various scenarios that leverages its global supply chain and includes potential pricing actions to mitigate impacts.

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SVP and CFO Bob Lucian attributed the Q3 margin guidance to continued pressure from the casegoods business, start-up costs for the new DFS partnership in the U.K., and typical Q3 seasonality from holiday plant shutdowns. President and CEO Melinda Whittington explained that average ticket growth is driven by superior in-store execution, strong product offerings, and compelling delivery speeds. Lucian added that the inventory increase was a planned investment to ensure raw material availability and support fast delivery times during the busy season.

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President and CEO Derek Schmidt explained that tariff surcharges (4% to 8.5%) are at the low end of the competitive set and were implemented alongside a reduction in ocean freight surcharges to stabilize retail prices. CFO Mike Ressler and CEO Derek Schmidt confirmed that multifaceted cost savings are being pursued and are factored into guidance, with the goal of largely offsetting the tariff's margin impact. Schmidt characterized the focus on product innovation as a continuation of a successful, high-intensity strategy. Ressler noted that inventory is well-positioned on top sellers and that the capital allocation strategy of reinvesting 70% of operating cash flow and returning 30% to shareholders remains intact.

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President and CEO Derek Schmidt noted that while March orders were seasonally typical, a significant slowdown occurred in April following tariff announcements. He reaffirmed that new products, which constitute over half of current sales, remain a core investment priority. Schmidt also detailed that the company is actively exploring alternative sourcing options to mitigate tariff risks and will work with partners to minimize consumer price impacts. Executive Michael Ressler added that the Q4 guidance assumes a 10% Vietnam tariff and that while competitors have also issued surcharges, the near-term margin impact for Flexsteel is expected to be minor, with a potentially larger effect in subsequent quarters if tariffs persist or increase.

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CEO Derek Schmidt attributed the revenue beat to broad-based growth, with core Flexsteel brands up 7% and new expansion initiatives up 92%. Executive Michael Ressler explained that volatile ocean freight costs are being passed through via surcharges. Schmidt guided for SG&A to be managed in the 15% to 15.5% of sales range. Regarding tariffs, Ressler quantified a potential $1.5-$2 million monthly cost increase from a 25% tariff on Mexico, for which Schmidt confirmed they have mitigation plans. Ressler stated near-term cash will serve as a cushion, with a long-term strategy to reinvest 70% in the business.

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President and CEO Derek Schmidt explained that growth was broad-based, with the majority of dollar growth from the core business. He noted that while retailer inventory is balanced, consumer traffic remains down. Schmidt also clarified that the Flexsteel brand e-commerce business grew 10%, while the lower-priced Homestyles e-commerce brand declined 26% due to competitive pressures. Executive Michael Ressler added that SG&A savings resulted from prior-year restructuring and that the current network can support over 20% revenue growth before requiring expansion.

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CFO & COO Christine Sacco reiterated that the Pillar five deal is primarily strategic to secure supply and is expected to remain largely neutral to the P&L, with a focus on cost avoidance rather than immediate accretion. Chairman, President & CEO Ron Lombardi explained the Clear Eyes brand strategy involves prioritizing top SKUs and managing marketing to align with product availability, noting the entire category has shrunk. Sacco also expressed confidence in the international segment's ability to achieve its long-term 5%+ growth algorithm, driven by brand and geographic expansion.

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CFO & COO Christine Sacco stated that while they are exploring sourcing options to mitigate tariff impacts, particularly from China, the current ~$15 million headwind is considered manageable. Chairman, President & CEO Ron Lombardi explained that the company focuses on a long-term innovation pipeline rather than targeting a specific percentage of sales from new products. Christine Sacco added that a key principle is that all new innovation must be margin-accretive to its brand.

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CFO and COO Christine Sacco stated that while they expect to gradually increase gross margin over time, the primary goal is to maintain a low to mid-30s EBITDA margin, which may involve reinvesting gross margin gains into A&M or G&A. She affirmed that the appetite for M&A is 'as healthy as ever' and the company continues to look for opportunities that fit its disciplined criteria, with cash now building on the balance sheet to support these efforts.

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CFO Christine Sacco responded to all questions. She stated that e-commerce currently represents about 15% of total business and is largely concentrated in North America. Regarding long-term growth, she affirmed that the Clear Eyes supply issue is the primary reason for the lower ~1% growth guidance this year and that nothing fundamental prevents a return to the 2-3% algorithm once resolved. On gross margin, Sacco confirmed that while some air freight costs are expected to continue in the back half of the year, they are anticipated to lessen, and the company maintains its full-year guidance of ~56%, with a long-term goal of returning to historical levels through cost improvements and pricing actions.

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Chairman & CEO Helen Johnson-Leipold noted that sales improved each month during the quarter and that promotions will remain a necessary competitive tactic. She also confirmed the ICAST award adds to the new product's momentum. CFO & VP David Johnson stated that tariff costs are expected to increase in Q4 but mitigation strategies are progressing. He confirmed pricing is a tool being considered, the cost savings program is robust, and that while inventory has been reduced, there is more progress to make.

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CEO Helen Johnson-Leipold confirmed that new products in Fishing and Camping are exceeding expectations and that the market remains challenging. CFO David Johnson stated that the company has real exposure to tariffs through components from China and is pursuing mitigation strategies. He quantified cost savings as providing a 1-2 point benefit to gross margin, offsetting discounting, and explained the high tax rate was due to jurisdictional income differences and a one-time tax audit accrual in Europe.

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CEO Helen Johnson-Leipold and CFO David Johnson responded. Johnson confirmed that revenue was negatively affected by both lower unit volumes and increased promotional discounting. Regarding the acquisition, Johnson-Leipold emphasized its strategic importance for innovation and efficiency, while Johnson disclosed the purchase price was approximately $14 million for the South Africa-based supplier. Johnson-Leipold described the retail environment as having 'cautious ordering' and 'mixed bag' inventory levels, with no market rebound expected in Q2 despite positive reception for new products. Johnson clarified that within the combined recreation segment, Camping is outperforming the 'really challenged' Watercraft market. He also noted that cost savings were achieved but masked by Q1 discounting, with more initiatives underway. On tariffs, Johnson acknowledged exposure but stated that mitigation strategies leveraging their U.S. manufacturing footprint are in progress.

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CFO David Johnson addressed the financials, explaining that Q4 sales saw a unit volume lift, while full-year growth came from both units and pricing. He noted retail inventory is a 'mixed bag.' Johnson quantified the Q4 gross margin pressure, attributing approximately 2.5 points of the decline to promotional pricing, a similar amount to unfavorable product mix, and about 1 point to inventory reserves. He confirmed severance costs were primarily a Q4 event and that the company is preparing mitigation strategies for potential tariffs. CEO Helen Johnson-Leipold detailed the innovation strategy, emphasizing a deeper focus on consumer insights, key talent, and quality launches like XPLORE and MEGA Live 2. She affirmed confidence in their ability to win with current resources, leveraging both internal and external expertise.

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CEO Joyce Mullen reported improvements in the corporate segment, with enterprise lagging, and noted the public sector (mostly SLED) is performing well in services and seeing hardware momentum. CFO James Morgado did not provide a specific Q2 impact number for partner changes but reiterated the underlying cloud business grew around 17%. Regarding 2026, management stated it was too early for guidance but highlighted that achieving a record Q2 gross margin despite the headwind shows their ability to manage profitability.

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President and CEO Joyce Mullen stated that the guidance contemplates minimal impact from current tariffs, as costs are passed to clients. She emphasized they are 'so not topped out' on structural improvements, with significant room to improve profitability. She also confirmed that the solid bookings momentum is expected to translate to revenue throughout the year, supporting the back-half weighted outlook.

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CFO Thomas Baker projected that gross margins would likely remain stable around current levels, as the primary headwind from licensing program changes has now been absorbed. President & CEO Timothy McGrath identified retail and manufacturing as particularly promising verticals for the second half. McGrath also detailed a three-pronged investment strategy focusing on hiring talent, enhancing sales and solution platforms, and implementing internal AI initiatives to boost productivity and ROI.

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CFO Thomas Baker noted that Q1 started slow in January and February but finished strong in March, driven by increased customer comfort and some pre-buying ahead of tariffs. CEO Timothy McGrath stated that for Q2, tariffs are a significant concern for customers, but mission-critical projects that drive efficiency are still moving forward. Regarding M&A, McGrath confirmed Connection's 'powder is dry' and they continue to seek tuck-in acquisitions, though the interest rate environment has impacted some opportunities.

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CFO Thomas Baker stated that Q4 sales trends were uneven, with a particularly weak November, and guided for flat to low single-digit revenue growth in Q1. CEO Timothy McGrath added that the project pipeline for 2025 looks strong, especially in the Large Enterprise segment and within the retail, healthcare, and manufacturing verticals. Baker explained that 2024's SG&A increase was due to strategic investments in personnel and systems, with growth expected to moderate. He also clarified that a one-time expense of approximately $2.5-$3 million impacted Q4 SG&A. Regarding tariffs, McGrath noted the situation is complex but serves as an opportunity to engage with customers on supply chain planning.

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CEO Tim McGrath projected that while AI-enabled PC sales would rise in 2025, benefits from larger on-prem AI implementations are more likely in the second half of 2025 due to customer caution. CFO Tom Baker added that tangible results from sales and technical hiring should appear around Q2 or Q3 2025. Regarding the Business Solutions segment, McGrath noted that SMB customers remain more cautious than enterprise clients. Baker explained the segment's strong gross margin was driven by a favorable mix, including strong cloud and software sales. He also stated that inventory is likely as low as it can go for now, and DSOs are performing well.

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CEO Kurt Wolf clarified that the core SaaS shipping business within SendTech grew 17% year-over-year, though the overall shipping segment declined due to a non-core business. He stated that while they are close to reversing the Presort customer losses, they have not yet done so. Wolf affirmed that acquisitions in the Presort space remain highly attractive and accretive. He declined to provide a specific diluted share count assumption for the EPS guidance.

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Executive Robert Gold detailed that cost savings are broad-based, targeting indirect spend and vendor contracts, which CEO Lance Rosenzweig added is part of a cultural shift. Regarding SendTech, Rosenzweig reiterated the goal for shipping growth to offset mailing declines in 12-24 months. He expressed high confidence in Presort's durable, U.S.-focused model and confirmed the recent tuck-in acquisition was successfully integrated, with plans to pursue similar small deals while avoiding large M&A.

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Interim CFO John Witek clarified that the EBIT outperformance was driven by genuine business performance and accelerated cost savings, not just one-time items. He affirmed that the high 20% EBIT margins in Presort are sustainable due to pricing, mix, and productivity. Witek projected that by 2026, SendTech's shipping growth would fully offset declines in the mailing business. CEO Lance Rosenzweig emphasized the long-term growth opportunity in the large shipping market. Witek also confirmed that historical earnings seasonality, with stronger Q1 and Q4, is expected to continue.

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CEO Lance Rosenzweig and CFO John Witek explained that the SendTech IMI migration is nearly complete, leading to a temporary revenue headwind from increased attrition and a shift to lease extensions, but a positive impact on cash flow. CEO Rosenzweig affirmed that Presort's strong performance is expected to continue. CFO Witek clarified that higher corporate costs were due to a variable compensation headwind from better goal attainment, which offset savings. For 2025, CEO Rosenzweig cited shipping growth and Presort strength as tailwinds, with the IMI migration completion and shift to leases in SendTech as headwinds.

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SVP & CFO Tex Clark noted that while July growth was broad-based, it remained concentrated in larger customers as the company pulled back on promotions that historically attracted smaller accounts. CEO Anesa Chaibi explained that the 'sense of urgency' involves operational nimbleness and empowering teams to make real-time customer service decisions. She stated that while there isn't a specific number for the total addressable market (TAM), there is a tremendous opportunity to expand into broader MRO by better understanding customer needs. Chaibi confirmed that investments in the sales organization will be necessary and that the company's strong balance sheet makes strategic M&A an option, which will be pursued prudently after current strategic pilots provide more clarity.

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Executive Thomas Clark explained that Indoff's growth was broad-based, continuing a trend from late last year, and not driven by pre-tariff pull-forward demand. He noted that SMB client activity also improved through the quarter. Regarding SD&A, Clark credited cost control measures and better leverage from improving revenue. CEO Anesa Chaibi and Thomas Clark both addressed tariffs, stating the situation is fluid but they are managing it daily with prudent, surgical price increases and are in a strong inventory position, which provides short-term flexibility. They confirmed they have not seen a negative change in demand trends following the initial small price adjustments.

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Thomas Clark, an executive, explained that Q4 revenue was volatile and Q1 was pacing similarly, with positive sentiment driven by larger accounts while the SMB segment remained soft. He noted the Salesforce rollout would be complete by summer 2025, with benefits accruing throughout the year. Clark clarified that the Q4 inventory increase was due to Lunar New Year planning and higher capitalized transit costs, not tariff pre-buys. He expressed confidence in managing margins through a focus on costs, pricing, and the private brand mix.

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CFO Thomas Clark explained that while customer retention remains healthy, both order frequency and average order value (AOV) are down slightly, with particular softness among smaller, transactional customers. CEO Richard Leeds added that value proposition improvements include enhancing the website to highlight product benefits and reallocating marketing spend to target higher LTV customers. He identified the phased rollout of Salesforce as a key long-term initiative expected to provide state-of-the-art tools for the sales team and drive benefits through the middle of next year.

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Brent Neidig, CCO, attributed strong China sales partly to a consumer buy-up ahead of tariff uncertainty and noted the active customer decline was largely due to brand partners anticipating the new compensation plan. He explained the new plan rewards new partners earlier in their journey. CFO Doug Hekking stated tariff impacts have been minimal due to proactive sourcing. Regarding HYA, COO Walter Noot confirmed significant growth and highlighted operational support from USANA, while CEO Jim Brown mentioned potential international expansion for HYA post-2025. Doug Hekking described the share buyback approach as opportunistic, and Jim Brown indicated that while the M&A team is active, it will take time to build cash for a significant acquisition.

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Chief Commercial Officer Brent Neidig confirmed ongoing promotional plans for key markets like China and Korea, noting strong momentum. CFO Doug Hekking detailed Hiya's strategy of systematic product launches and channel exploration. COO Walter Noot, CEO Jim Brown, and CFO Doug Hekking collectively explained that Hiya synergies are being approached methodically, focusing on operational support without disrupting Hiya's core strategy, with benefits expected over time. Brent Neidig also provided an update on India's slow but promising growth. Regarding tariffs, Walter Noot and Jim Brown outlined proactive measures, including building inventory and diversifying raw material sourcing, noting that only 6% of U.S. raw materials are sourced from China.

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CEO Jim Brown and CCO Brent Neidig attributed the growth to creative, tailored promotional offerings and empowered regional leadership, which they plan to replicate globally. CFO Doug Hekking noted that recent regional trends are expected to continue, with China remaining a key focus. Regarding Hiya, Hekking explained the updated guidance reflects increased confidence in their forecast models and confirmed it includes minimal impact from channel expansion. CEO Jim Brown added that India is growing well from a small base but is not yet significant to overall results.

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Chief Commercial Officer Brent Neidig explained that convention feedback indicates rebuilt trust with sales leaders, with momentum expected in Q4. He attributed faster product development to internal restructuring, not increased headcount. Neidig also outlined a 2025 product strategy focused on upgrading existing products, starting in the U.S. and expanding globally. CEO Jim Brown noted SKU counts would be managed over the product lifecycle. CFO Doug Hekking added that reduced advertising was a strategic shift away from low-return activities.

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