La-Z-Boy Incorporated (LZB) CEO Melinda Whittington On Q3 2022 Results - Earnings Call
La-Z-Boy Incorporated (NYSE:LZB) Q3 2022 Earnings Conference Call February 16, 2022 8:30 AM ET
Company Participants
Kathy Liebmann - Investor Relations
Melinda Whittington - President & Chief Executive Officer
Bob Lucian - Chief Financial Officer
Conference Call Participants
Bobby Griffin - Raymond James
Anthony Lebiedzinski - Sidoti
Bradley Thomas - KeyBanc Capital Markets
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.
Operator
0:10 Good morning ladies and gentlemen and welcome to the La-Z-Boy Fiscal 2022 Third Quarter Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for your questions and comments after the presentation.
0:24 It is now my pleasure to turn the floor over to your host, Kathy Liebmann. Ma'am, the floor is yours.
Kathy Liebmann
0:32 Thank you, Holly. Good morning and thank you for joining us to discuss our fiscal 2022 third quarter results. With us this morning are Melinda Whittington, La-Z-Boy’s President and Chief Executive Officer, and Bob Lucian, CFO. 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. Slides will accompany this presentation and you may view them through our webcast link, which will be available for one year, and a telephone replay of the call will be available for one week beginning this afternoon.
1:10 Before we begin the presentation, I’d 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 those risk factors, as well as other key information detailed in our SEC filings.
1:44 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.
2:00 With that, I’d now turn over the call to Melinda Whittington, La-Z-Boy’s President and Chief Executive Officer. Melinda?
Melinda Whittington
2:09 Thank you, Kathy, and good morning, everyone. Yesterday afternoon following the close of market, we reported our fiscal ’22 third quarter results, which included delivered consolidated sales of a strong 22% versus last Q3, including record delivered sales and operating profit for our company owned retail segment. Ongoing strong demand versus pre-pandemic levels $32 million, returned to shareholders through dividends and share repurchases in the quarter, bringing our year-to-date total up to $96 million and all time high and closing on 2 important acquisitions to five La-Z-Boy furniture gallery stores in the Alabama market and the Furnico (ph) Manufacturing Company in the UK.
2:59 While delivering strong top line growth, the quarter also had significant challenges. After a very strong November across the majority of our business, supply chain volatility amplified in the balance of the quarter, even beyond our previous expectations. This had a significant near-term impact on the efficiency of our manufacturing capacity ramp plans, affecting both sales and profit performance
3:27 Within our own manufacturing operations, which comprise the majority of our wholesale business, lack of availability of component parts, including electronic chips and actuators, continued to disrupt production plans but at a higher level than we expected. Beyond the obvious direct production delays, these outages drove inefficiencies as manufacturing cells are trained on specific unit styles and need to retrain on other styles until parts are available. This was exacerbated by such a large portion of our manufacturing staff being relatively new, given our significant capacity expansion, including 3 new facilities in Mexico over the past year.
4:11 Further, these parts outages are disproportionately affecting our higher end products, which sell at a greater level in our La-Z-Boy Furniture Galleries stores, including our own retail, thereby magnifying the near-term financial impact.
4:29 With the goal of meeting consumer demand and to best serve our customers in this environment, our procurement team continues to invest in inventory for key component parts and diversify our supplier base, including creative solutions. In one particular instance, we have sent a La-Z-Boy team to work in the plant of one of our domestic suppliers to help increase their production of component parts for La-Z-Boy, as they too are experiencing labor challenges. We will continue to make progress here. The global supply chain disruptions remain prevalent and we will likely be managing them for a while.
5:10 Additionally, the 14-week COVID related shutdowns in Vietnam, where the majority of our casegoods product is sourced significantly impacted our wholesale segment resulting from minimal inventory available to ship to consumers and high freight costs during the quarter. Product is flowing again, and we expect casegoods sales and profits to normalize during the first half of fiscal ’23 when we were more consistently received product to ship to customers.
5:43 Further exacerbating the disruption this quarter, the Omicron variant impacted plant operations and production across all geographies. In January, at times we had as much as 20% of our manufacturing workforce out, due to contraction of the virus or exposure. As the health and safety of our team remains our highest priority. These peaks are orders of magnitude higher than our previous worst peaks last winter. As with much of North America, we're now seeing the number of COVID cases trend downward quickly, but it will take time to recover from the disruption.
6:24 Managing across these challenges, as well as the ongoing tight labor market and increasing input costs, has resulted in production gains being slower than expected, impacting the pace of delivered sales and profitability growth in the near term. Our number one focus across the company is to improve the agility of our supply chain to increase production more quickly and efficiently. We have deployed SWAT teams comprised of some of our most experienced leaders to our newer, most challenged locations to assist in training and increasing output. We have hired additional key leadership with expertise from other industries to bring fresh perspectives to our challenges, working alongside our industry veterans. And as noted, we continue to identify and act on creative solutions to upstream supply challenges, including expanded sourcing diversity, protective inventory builds and even helping suppliers staff extra shifts to supply key component parts
7:33 These challenges while significant, are temporary in nature and each day we get better at managing through them. Ultimately, demand for our product is strong and we are already delivering sales at all-time record levels. But we must do better to weather each disruption, continue to increase our capacity, improve cost efficiencies, work down our backlog, and service our customers and consumers. While working toward the double digit profitability levels, we know we can achieve in the longer-term with our expanded North American footprint.
8:14 Turning back to the top line and demand for our products, written same-store sales for the La-Z-Boy Furniture Galleries Network increased 3% in the fiscal ’22 third quarter and we are at 9% compared with the pre-pandemic fiscal ’20 quarter for a compound annual growth rate of 4% across the 2 years. Sales to the La-Z-Boy Furniture Galleries network represent about half of our total manufactured La-Z-Boy products and are directionally indicative of the continued strength of demand for our product over time.
8:52 For our company own stores, our retail segment written same-store sales were down 1% versus the prior year third quarter and up across the two years at a compound annual growth rate of 4%. Given the unusual nature of the past 2 years, written same-store sales comparisons in any given period may shift positive or negative slightly compared with prior year period, even as the underlying business remains very strong. In fact, our annual sales per store across the network now average about $5 million versus $4 million pre-pandemic.
9:35 And as part of our Century Vision, in addition to sustained strong same-store sales, we intend to also grow La-Z-Boy with additional new stores and specific to our company on retail business, opportunistic company acquisitions of existing independently owned stores such as the recent Alabama network acquisition.
10:02 And our Joybird business continues on its strong growth trajectory this quarter, writing 27% more business this Q3 than last year's third quarter with an extremely impressive compound annual growth rate of 51% across the last 2 years.
10:22 Now let me turn the call over to Bob to review the results in more detail, Bob.
Bob Lucian
10:27 Thank you, Melinda and good morning everyone. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe a non-GAAP presentation better reflects the 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.
10:51 On a consolidated basis, fiscal ’22 third quarter sales increased 22% to $572 million versus the prior year quarter, reflecting continued strong demand and ongoing manufacturing capacity increases as well as the effects of pricing and surcharge actions. Compared with the pre-pandemic fiscal ’20 third quarter sales were 20% higher for a compound annual growth rate of about 10% over the last 2 years.
11:21 Consolidated GAAP operating income increased to $39 million versus the prior year period. And non-GAAP operating income was $40 million. Consolidated GAAP operating margin was 6.9% and non-GAAP operating margin was 7.0%. GAAP diluted EPS was $0.65 for the fiscal ’22 third quarter versus $0.62 and the prior year quarter. Non-GAAP diluted EPS was $0.65 in the current year quarter versus $0.74 and last year's third quarter.
11:52 As I moved to the segment discussion, my comments from here will focus on our non-GAAP reporting unless specifically stated otherwise. Demand for and delivery of product across the enterprise remains strong. Starting with our wholesale segment delivered sales for the quarter grew 21% to $423 million compared with the prior year period, driven by pricing and surcharge actions as well as higher volume.
12:21 Non-GAAP operating margin for the wholesale segment was 6.5% versus 10.2% and last year’s third quarter. This reflects higher raw material and freight costs sourcing related tariff and duty increases in disruption from component parts shortages. We also experienced continued labor challenges and planet inefficiencies related to manufacturing startup activities, which are exacerbated by the latest COVID peaks. Additionally, COVID related shutdowns in Vietnam significantly impacted the product flow and margin performance of our casegoods business. Driving an approximate 130 basis point decline and non-GAAP operating margin of the total 370 basis point declined for the period. These challenges were partially offset by pricing and surcharges. Fixed Costs leverage on higher volume and lower marketing spend as a percentage of sales.
13:16 For the quarter, our retail segment delivered sales increased 19% to an all-time record $197 million, delivered same-store sales increase 16% versus the year ago quarter. Retail posted record high non-GAAP operating profit dollars and non-GAAP operating margin increased to 12.2% versus 8.9% in the prior year quarter, driven primarily by fixed costs leverage on the higher delivered sales volume in discipline expense management. Joybird, which is reported in corporate and other posted record sales of $45 million, a 56% increase versus the prior year quarter. On a two-year basis, compared with the pre-pandemic fiscal ’20 third quarter deliver sales more than doubled, representing a compound annual growth rate of 43%. This reflects the Momentum Joybird is building in the direct to consumer marketplace as we continue to acquire customers and strengthen brand awareness through new digital marketing channels.
14:23 Joybird’s profit for the quarter was roughly breakeven as we invested significantly in marketing to grow the business while experiencing increased raw material and freight costs which negatively impacted gross margin. Moving forward we expect pricing actions to continue to work their way through our delivered sales, which will improve gross margin back to target levels. And we will continue to invest in marketing to deliver disproportionate brand growth while sustaining profitability.
14:52 Putting all of this together, consolidated non GAAP gross margin for the entire company for fiscal ’22 third quarter decreased 440 basis points versus the prior year quarter, due primarily to the challenges noted in wholesale offset partially by pricing and surcharge actions.
15:10 Consolidated non-GAAP SG&A as a percent of sales for the quarter decreased 190 basis points, primarily reflecting fixed costs leverage on a higher sales volume across our wholesale and retail segments. Our effective tax rate on a GAAP basis for the fiscal ’22 third quarter was 24.8% versus 27.7% and last year's third quarter. The third quarter of last year was unfavorably impacted by a non-deductible fair value adjustment of the contingent liability related to the acquisition of our Joybird business. 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 to be between 25.5% and 26.5%.
16:02 Turning to cash year-to-date, we generated $45 million in cash from operating activities. We ended the period with $240 million in cash and no debt and held $30 million in investments to enhance returns on cash. Year-to-date, we've invested $83 million in higher inventory levels to help protect against supply chain disruptions and support increased production and delivered sales. We have also spent $59 million in capital year-to-date primarily related to improve in store – retail stores. New upholstery manufacturing capacity in Mexico, plant upgrades at our manufacturing and distribution facilities and technology upgrades.
16:45 Regarding cash returned to shareholders, during the quarter, we continue to buy back shares, spending $25 million repurchasing more than 700,000 shares of stock in the open market, leaving 7.9 million shares in our existing authorized share repurchase program. Year-to-date, we have returned $76 million to shareholders via share repurchase and $21 million through dividends including $70 million paid in dividends in the third quarter.
17:16 Before turning the call back to Melinda, let me highlight several important items for the remainder of fiscal ’22. As noted, demand trends are strong across the business and remain much higher than pre-COVID levels, and our backlog remains high. To address this strong demand, we will continue to improve our agility and ability to increase production capacity, although our near-term gains will be slower than previously anticipated. Efficient plant expansion will also benefit when global supply chain disruptions begin to stabilize although this timing is unknown, and these challenges will likely continue to disproportionately impact our higher end products, which sell a greater level and our La-Z-Boy Furniture Gallery Stores.
18:02 Specifically the casegoods import business, we expect operations to normalize during the first half of fiscal ’23 as we more consistently receive product and ship it to our customers. The fourth quarter will benefit by containing 14 production weeks compared to 12 production weeks in our third quarter. To recall fiscal ’22 will include 53 weeks of results versus 52 weeks last year.
18:29 Taking all of these factors into consideration, we now expect delivered sales per week in Q4 to be flat to slightly up versus the third quarter and consolidated non-GAAP operating margin to strengthen to a range of 7.5% to 8.5%. We maintain our long-term commitment to steady margin progress, as we deliver incremental capacity increases with our rebalanced North America manufacturing footprint and improve our ability to adjust the supply chain disruptions.
19:00 This will enable us to better service the demand for our highest value products, which disproportionately sell through our furniture gallery stores. However, as noted, many variables will affect the next several quarters progress against these goals.
19:15 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 $80 million to $85 million for fiscal ’22.
19:29 And now I will turn the call back to Melinda.
Melinda Whittington
19:33 Thanks, Bob. While near term supply chain headwinds are impacting our ability to efficiently ramp production to the extent we would like near term. Demand for our products is strong. Delivered sales are at all-time highs. We believe the momentum is sustainable. And we are poised to grow from this new base of nearly $2.2 billion of trailing 12 months sales. In the immediate term, we are laser focused on driving efficient supply chain expansion to benefit our end consumers, our customer business partners, and our top and bottom line financial performance.
20:16 And looking further out, our focus remains on long-term profitable growth as we execute our Century Vision, our strategy to leverage our strong consumer brands to drive sales growth ahead of the industry and deliver double digit non-GAAP operating margins and value to all stakeholders.
20:39 We thank you for your time this morning. And I'll turn the call back to Kathy.
Kathy Liebmann
20:44 Thank you Melinda. We will begin Q&A period. Now Holly, please review the instructions for getting in the queue to ask a question.
Question-and-Answer Session
Operator
20:54 Certainly, [Operator Instructions] Your first question for today is coming from Bobby Griffin. Please announce your affiliation, then pose your question.
Bobby Griffin
21:26 Good morning, buddy. This is Bobby Griffin from Raymond James. Thanks for taking my questions and hope everybody's doing well.
Melinda Whittington
21:33 Good morning, Bobby.
Bob Lucian
21:33 Good morning.
Bobby Griffin
21:36 I guess, first, I want to just touch on the price increases and maybe help us connect where we are on the pricing that you've passed through and how much has been realized? And I guess how much is still left to be realized as you move forward?
Bob Lucian
21:54 Value the vast majority of the pricing is now coming through delivered sales for the La-Z-Boy brand. We've got a little bit more pricing on both the casegoods side and the Joybird side, that will come through Q4 and a little bit into Q1, just giving some of the increases that we've seen in freight, and what we import out of Vietnam.
Bobby Griffin
22:16 Okay. So Bob, is the – is the cost pressures that we're seeing in supply chain wise is more in efficiencies and just having to expedite things and challenges that way versus, just pure cost of items, or you're going to have to take based on some of these more recent challenges you caught out, you're gonna have to take more pricing to get whole again, as well.
Bob Lucian
22:36 It's more of a, it's more of a former of what you talked about relative to some of the inefficiencies that we have in our operations and the hits that we're taking as it relates to supply chain disruptions, and the extra work and money and effort we have to spend to deal with that.
Bobby Griffin
22:50 Okay.
Melinda Whittington
22:51 Now, that said, we're constantly watching input costs, and we'll continue to price as needed as we go forward.
Bobby Griffin
23:00 Okay, that makes sense. And then, I guess, secondly for me -- and that's helpful. I appreciate the detail on the last one. Secondly for me, I know we typically want to get the backlog once a year in the 10-K, but times are a little more unique now and given the size of the backlog. I was hoping maybe just to get a little color on directionally where it's at. Written trends have been positive year-to-date, production has increased. But it's tough to kind of say, has the backlog actually materially come down given that business has been pretty good so far, even with increased production?
Melinda Whittington
23:34 Yeah, the backlog is about the same, honestly. And, we exactly, as you said, it's a – it's a equation of strength of demand and our ramping capacity. And, truthfully, we want to see that backlog start to come down, because that's how we better service our customers and our consumers. But right now, we're at about the same place. And again, it's an equation of strong demand continued, and capacity ramping, but not fast enough to shorten our lead times.
Bobby Griffin
24:09 Okay, That’s helpful. And then I guess, lastly for me, we have gotten a couple of questions. When you look at the written same-store sales for the owned and licensed stores, sort of the whole La-Z-Boy network. On a two year basis, they did slow sequentially and now, I guess my question is, I understand timing wise, the price increases and stuff last year can mess with the seasonality. So if you put written into, I guess, if you take and look at just dollars of written business, as is that materially changed from 1Q to 2Q to 3Q, is there anything to read more into that slowdown on a two-year percentage basis?
Melinda Whittington
24:44 I think the thing to keep in mind overall is that the business is about 30% bigger than it was pre-pandemic, and it's sustaining. And, as we think about growth across that demand continues high to your point on any given quarter that the base period comparisons get so strange on, this December, January was more affected by Omicron. And Canada, they were shut down a year ago, for the most part, you get a lot of different wiggles at any given period. But overall, the written trends still stay strong, and our businesses is 30% bigger than it was before the pandemic. So our focus is on continuing to grow that, obviously, we want to keep kind of that same-store sales, written business strong. I mentioned in my prepared comments that right now, our average is about $5 million per store on existing stores. And before the pandemic, it was $4 million. But at the same time, we'll look to expand stores and expand the number of stores we own as well. And of course, that's just speaking to our retail business, half of our business is selling through other outlets, other customers and that business remains strong as well.
Bobby Griffin
26:07 Okay, that's very helpful. I'll jump back – jump back in the queue and turn it over somebody else. Thank you for taking my questions. And best of luck, you're going forward.
Melinda Whittington
26:15 Thanks, Bobby.
Bob Lucian
26:16 Thank you.
Operator
26:18 Your next question is coming from Anthony Lebiedzinski. Please announce your affiliation then pose your question.
Anthony Lebiedzinski
26:27 Oh, yes. Good morning. This is Anthony Lebiedzinski from Sidoti and company and good morning and thank you for taking the questions. So looking at the guidance for operating margin for Q4, what are the biggest factors as far as driving that sequential increase that you expect?
Bob Lucian
26:48 The biggest factors are continuing to make progress against increasing our capacity, getting the hire – continuing to hire and train and retain the folks that we need for that capacity, as well as opportunities that we have to improve our mix with better, I should say slightly improving parts outages on some of the higher cost products that we make and sell through our retail outlets. So those are the key factors that we expect, that will help us to drive it sequentially higher margin versus what we just delivered.
Melinda Whittington
27:24 And those are really Anthony, the same – the same factors we've been looking at all along, we're marching towards stronger capacity and more efficient capacity builds. Unfortunately, this quarter, we had more setbacks than we expected on that trajectory. And it's going to recognize and it's going to take time, but it's really all about driving that capacity, servicing the consumer and getting more efficient as we go.
Anthony Lebiedzinski
27:57 Got it. Okay. And then in terms of the component shortages that you spoke about, so since the quarter ended last month, but has there been any notable change? Or is it just kind of more of the same?
Bob Lucian
28:09 There has been – there's been incremental sequential improvement, it's not fixed. I mean, we're some of the work that we're doing with some of our suppliers, and some of the extra suppliers that we're bringing online, are starting to have a more positive impact relative to their shortages. But it's not a just flip a switch, turn it on, and always problems go away. So that will just continue to improve as we move through the quarter and into the first half of next year.
Anthony Lebiedzinski
28:40 That's okay, so that's encouraging to hear. And the last question for me, so Joybird again, did very well. Now accounting for 8% of total sales for the quarter, longer-term hub, how should we think about the growth of that business as to how big it could ultimately become and as that happens? How should we think about profitability of that segment? Longer-term?
Melinda Whittington
29:03 Yeah, we have, as we've laid out our Century Vision, we obviously a huge building block of that Century Vision for growth over time, we've said as a total company, we believe we can grow ahead of the industry. One pillar that is the La-Z-Boy brand, and really reinvigorating that brand. A second pillar is really leveraging the opportunity that the room that we believe we have for Joybird to grow as a consumer brand, so we will continue to invest in that brand. And we do believe it will disproportionately grow within our business and our focus is on maintaining a reasonable profitability with that business, but not necessarily expecting it to look like, an integrated profit on our La-Z-Boy brand, because it is in growth mode. So in different modes of its – of its maturity.
Anthony Lebiedzinski
30:00 Understood. Okay. Thank you very much and best of luck going forward.
Melinda Whittington
30:05 Thanks, Anthony.
Operator
30:09 [Operator Instructions] Your next question is coming from Brad Thomas, please announce your affiliation. Then pose your question.
Bradley Thomas
30:24 Hi, good morning. Yes, it’s Brad Thomas with Keybanc Capital Markets. Good morning, Melinda, Bob and Kathy.
Bob Lucian
30:30 Hi, Brad.
Melinda Whittington
30:31 Good morning.
Bradley Thomas
30:34 All right, just a few more for me here along probably similar vein as some of the earlier questions. But maybe just wanted to follow up on the cadence of the written orders and wondering if you could provide any color on, how things trended through the quarter what you're seeing thus far. In February, we've obviously heard broader concerns about Omicron weather, and lapping stimulus payments as having been headwinds for the consumer of late. Just curious if you're seeing any of that in your business.
Melinda Whittington
31:08 Yes. I can't say there's any dramatic trend change through the quarter other than, as I noted, we saw January hit by Omicron temporarily, right? That was fairly fast. If you think about, again, from a comparison standpoint, Canada was essentially shut down last year. Now they're open. So on a comparison basis, Canada looks great. But from a more long-term trend, I don't think we're seeing any dramatic change per se.
Bradley Thomas
31:47 That's helpful. And so with what you're seeing today, you feel like your fiscal fourth quarter is tracking up so far on a written basis, is that right?
Melinda Whittington
31:59 Yes. I guess I would – I'm not going to comment on written for fourth quarter right now as there are so many different moving pieces, including in the base. But I would just point out a couple of things as we think – I think written same-store sales is an important metric to kind of look at what are you doing with an existing asset base over time.
32:26 But I would also challenge that it's maybe – it certainly isn't the only metric to look at any of these businesses right now when the base period is so different than what it has been in the past. So today, our stores are averaging $5 million in delivered sales per year compared to 2 years ago pre-COVID, they were $4 million a year, right? So what the – what we are growing off of that base, what we are achieving off of that base of any given store is 30% more than it had been.
33:07 As we go forward, we'll continue to look at how do you drive more off of that same base of stores, for sure, that same written same-store sale number. But what we're also looking at is part of Century Vision, expanding the number of stores. And we've talked in the past around – we believe there's opportunity for, call it, about 50 additional stores just with an existing space where the marketplace would support additional stores. We'll continue to also grow through acquisition like we did at the Alabama stores here in the last couple of months through, as we have in the past on some of the independently owned. And then, of course, through our other businesses as well.
33:54 So written same-store sales is an important metric, and we believe it will continue to be directionally positive over time, but it's not the only metric by which to evaluate the growth of our business as we go forward, or anyone's business, I would say, coming off of this unusual pandemic time.
Bradley Thomas
34:15 Got you. That's helpful context. Thank you. And then I guess just as we think some of the product inability or longer-than-usual times that you're quoting and some of the mix dynamics, I guess just as we're thinking about on whatever basis you want to talk about, delivered sales and reported sales or written sales, is there any way that you think that sales of any sort are being impacted right now by what your offering is like? And if so, any ability to quantify it? Again, I'm just trying to put context around it. Some of the stuff.
Melinda Whittington
34:52 Sure, absolutely. So from – a couple of things. Right now, we're quoting 4 to 6 months lead time, and that is not where we would be. That's on our La-Z-Boy business. We're shorter on our Joybird business right now. That's not good service to our customers or our consumers, right?
35:10 And so it all sort of comes down to our whole focus is on getting that supply chain expansion up running and running as efficiently as our plants have run over time. That's got to happen. As we do that, just simply with what's in our backlog, our backlog is still at all-time highs on our La-Z-Boy business. So just with what's in our backlog alone, we will continue to drive increased delivered sales and improve profitability quarter-on-quarter.
35:47 And we've got a runway again, just with the orders that are already on the books to drive delivered sales incrementally improving week after week. This quarter, a little bit slower than what we had hoped, but we will continue to work through that and through as Bob noted, for quarters to come, we expect to see incremental improvement in capacity. And given even just the orders on the books, that turns into delivered sales right away.
36:16 At the same time, as we're looking at how do you keep filling the coffer again, right? We want to drive that backlog down because we want to be delivering better service to our customers and our consumers. But as we drive that backlog down, we want to be filling that coffer with more sales to deliver. And so with that, we will continue to drive, strengthening written sales. And we believe we can do that through the strength of our brands. And with our Century Vision, I'm really reinvigorating the brand equities as well, to ensure we're growing for the long term.
36:52 Now the exact pace of that on any given quarter may shift around a little bit, but we feel confident that our last – our trailing 12 months is about $2.2 billion in sales for total company. Pre-pandemic, we were at $1.7 billion right? So business is up 30% pre-pandemic and we do believe we will grow – we have the building blocks to grow off of that base ongoing and improve margins over time.
Robert Lucian
37:25 One thing I'd add to that, just from a – how do you feel about the business. When a consumer walks in and they're paying more money for product, and we're telling them it's still going to take them 4 to 6 months to get that product and our sales -- our written sales are still strong, that's a good indication that the brand is strong and that some of the concerns that are out there, that you've written about around stimulus checks going away and other doom and gloom on the industry, we're a little bit more bullish from that standpoint, from an industry perspective, because we're able to weather the higher prices and the longer lead times. Not happy about either one of those things, but we're here to make sure that the consumers who come in want furniture, get that furniture.
Bradley Thomas
38:15 Absolutely. And no question the industry is facing just untested level of complexities and challenges right now and you're navigating many of those very well. Just on some of the guidance for the fourth quarter, I just want to make sure people are doing the math right here. I think if we looked at 12 weeks versus 14 weeks and on a per week basis being flat to up, that implies that sales may be up in your fiscal fourth quarter, perhaps high 20s to low 30s percent. Just with the consensus sitting here now, I think only 23% growth. I just want to make sure we're doing the math right there. Bob?
Robert Lucian
38:56 The math is correct to take your Q3 divided by 12, multiply it by 14 and it will be that or slightly better than that.
Bradley Thomas
39:08 Perfect. And then just a last one for me about coming back to margins that are clearly a focal point here. I guess as you reflect on the third quarter and some of the guidance here for 4Q, how much do you think is kind of clear cut? Oh, this should go away if we just give it time. This is part of the transitory issues we're dealing with in the pandemic, versus issues that may be a little bit more structural. And I guess, how, if at all, is your kind of long-term outlook for operating margins for La-Z-Boy changing?
Melinda Whittington
39:40 Brad, I'll talk about that in a bit, and then Bob can add in. It's a little bit of each of those. So the first thing is we've got 3 brand-new plants that we've opened in Mexico, as well as the labor challenges in the U.S. So we've got a lot of new people making furniture. And we've talked in the past about it takes 6 to 9 months to sort of get them up to average – kind of average throughput and when that many people are new, that probably slows that down a little bit.
40:14 So a healthy chunk of what we saw this quarter is we were really now with -- we just in January, opened that third brand-new plant. We are every day adding more to the sales and the production capacity. What we saw this quarter is those continued and exacerbated disruptions on parts, the different – the Omicron, outages, and so you're always putting different – in the end, it's an artesian process. So you're always putting different people together trying to make furniture.
40:44 So what we saw is we didn't get the efficiency gains that we expected to in this quarter. That doesn't mean they're not there. And so a big piece of our progress on margin and we're just trying to be realistic about you're dealing with training thousands of people, we're trying to be realistic about how quickly we come up on that. But a big chunk of that progress forward is controlling our own destiny, right? It's getting better every day at training folks to be able to be very efficient on furniture production and getting better at weathering the uncontrollables.
41:24 So there's no doubt, again, the chip shortages continue they actuate as you pick your thing, and we're investing in inventory to manage as much of that disruption as possible. But there are some things like, you can't go buy more chips, right? They just don't exist. So some of those things are real, but we have to work on our own agility to manage that.
41:47 So yes, there will continue to be disruptions. Yes, they will cause inefficiencies. But a lot of going forward is within our own control of getting better, getting our folks trained and being able to weather those things so that we continue to make progress. And at the end of this, we'll have a better distributed footprint of where our manufacturing facilities lie across all of North America that sets us up with a better overall structure, cost structure and service structure than we had pre-pandemic, even though I think some of the external headwinds will probably -- inflation and so forth, will exist for the longer-term.
Bradley Thomas
42:39 Very helpful. Thank you so much Melinda.
Melinda Whittington
42:42 Thanks, Brad.
Operator
42:48 There appear to be no further questions in queue. Do you have any closing comments you'd like to finish with?
Kathy Liebmann
42:55 Thanks, Holly. Thank you, everyone, for your time this morning. If you have follow-up questions, please be in touch and have a great day. Bye bye.
Operator
43:07 Thank you, ladies and gentlemen. 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.
