Financial Data and Key Metrics Changes - Consolidated net sales for the second quarter were $149.9 million, benefiting from a higher starting retail backlog and a higher average ticket price, but offset by fewer contract sales and lower demand [7] - Retail written orders declined by 17.9%, while wholesaler orders were down 19.3% compared to the previous year, reflecting macroeconomic challenges and a difficult prior year comparison [7] - Consolidated gross margin was 60.9%, an increase of 60 basis points from a year ago, attributed to a change in sales mix and reduced headcount [8] - Adjusted operating income was $13.5 million, with an operating margin of 9%, significantly higher than the 5.4% margin in the pre-pandemic second quarter of 2019 [8] - Adjusted diluted EPS was $0.44, with an effective tax rate of 25.3% [9] Business Line Data and Key Metrics Changes - Retail written orders showed a decline, with a notable decrease in design center traffic by 11% [7] - The wholesale backlog at the end of the quarter was $49.8 million, influenced by a lower volume of contract orders [8] Market Data and Key Metrics Changes - The company experienced a significant impact from the government shutdown, leading to lower consumer confidence and reduced traffic to design centers [4] - Positive written order growth was observed in January, indicating a potential recovery in consumer behavior [7][34] Company Strategy and Development Direction - The company aims to strengthen its vertically integrated structure, focusing on product programs, marketing, and logistics [13][16] - Approximately 75% of furniture is manufactured in North America, providing a competitive advantage and mitigating tariff exposure [12][13] - Increased advertising spend by 25%, primarily in digital media, is expected to yield future benefits despite not fully impacting the second quarter [15][36] Management's Comments on Operating Environment and Future Outlook - Management noted that the government shutdown had a major impact on orders, but there are signs of recovery as orders are beginning to come in again [21] - The company believes it can maintain strong gross margins due to improvements in talent and technology across its operations [22] - There is cautious optimism regarding consumer behavior returning to normal, with increased traffic noted in January [34] Other Important Information - The company has a robust balance sheet with total cash and investments of $179.3 million and no debt [9] - The company is exposed to tariffs on imported goods, with strategies in place to mitigate these costs through vendor cost sharing and selective price increases [11][30] Q&A Session Summary Question: Retail written orders trends during the quarter - Management acknowledged that retail written orders were impacted by difficult comparisons, with an average decrease of 18% throughout the quarter [19] Question: Improvement in contract side of the business post-government shutdown - Management reported that orders are coming in reasonably high but are lower than the previous year, with a gradual increase observed [21] Question: Sustainability of gross margins moving forward - Management expressed confidence in maintaining gross margins due to ongoing improvements in operations and technology [22] Question: Impact of tariffs and mitigation strategies - Management outlined a three-pronged approach to mitigate tariff impacts, including vendor cost sharing, sourcing diversification, and selective price increases [30][32] Question: January trends and marketing effectiveness - Management attributed improved trends in January to returning consumer confidence and effective marketing strategies [34][36]

Financial Data and Key Metrics Changes - For the full year, sales reached nearly $3.9 billion, with a comparable sales decrease of 2.7% and adjusted EPS of $5.04 [10][28] - Total sales in Q4 increased 7.8% to $1.39 billion, while comparable sales decreased 3% due to five fewer holiday shopping days [25][27] - Adjusted net income for Q4 was $192.4 million, compared to $193.8 million last year, resulting in adjusted EPS of $3.48 [27][28] Business Line Data and Key Metrics Changes - The company opened a record 228 new stores in 2024, ending the year with 1,771 stores across the U.S. [10][11] - Adjusted gross profit for Q4 was $563.2 million, an increase of 6.2% year-over-year, while adjusted gross margin decreased by approximately 60 basis points to 40.5% [26][27] Market Data and Key Metrics Changes - The company experienced a decrease in comparable transactions of 1.9% and a 1% decrease in average ticket size [25] - Inventory at the end of the year was $659.5 million, compared to $584.6 million at the end of the previous fiscal year [29][30] Company Strategy and Development Direction - The company aims to sharpen its focus on the customer, particularly targeting kids and their parents, to build long-term relationships [14][22] - Plans include simplifying pricing, focusing on $1 to $5 price points, and enhancing the product assortment to drive customer visits [20][23] - The company is also looking to expand its footprint, with a target of 3,500 stores, and plans to densify existing markets while entering new ones like the Pacific Northwest [22][84] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding consumer spending, noting no significant changes in customer behavior despite economic challenges [40] - The company is preparing for potential margin headwinds due to tariffs, estimating a 100 basis point impact for the full year [34][35] Other Important Information - The company is investing in marketing to enhance brand awareness and customer engagement, with a new Chief Marketing Officer appointed to lead these efforts [21][66] - Capital expenditures for fiscal 2025 are expected to be between $210 million and $230 million, reflecting new store openings and infrastructure investments [35] Q&A Session Summary Question: What is the overall health of the consumer? - Management is pleased with sales performance and sees no meaningful difference in customer spending habits compared to the past [40][41] Question: What is the expected impact of tariffs on margins? - The company anticipates about a 100 basis point impact from tariffs, with mitigation efforts including selective price adjustments and vendor negotiations [45][46] Question: How will the company regain lost margins? - Management indicated that improvements in shrink rates and operational efficiencies could help regain margins over time [57][58] Question: What is the status of new product development? - The company is excited about upcoming summer assortments, focusing on value and relevance for customers [62][63] Question: What is the plan for marketing spend? - The company aims to optimize marketing spend, focusing on efficient channels and enhancing customer engagement through social media [66]