What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-06-15 compared with 2020-06-23 · 250 added, 263 removed, 171 unchanged (75% of the section changed)

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In addition, we import, distribute and retail accessories and casegoods (wood) furniture products under the Kincaid ® , American Drew ® , Hammary ® , and Joybird ® tradenames.

As of April 25, 2020 , we had six major manufacturing locations and six regional distribution centers in the United States and two facilities in Mexico to support our speed-to-market and customization strategy.

We closed our manufacturing facility located in Redlands, California as of the end of the second quarter of fiscal 2020.

On June 4, 2020, we announced the closure of our Newton, Mississippi upholstery manufacturing facility.

Production from our Newton upholstery facility will be shifted to available capacity at the company’s Dayton, Tennessee, Neosho, Missouri, and Siloam Springs, Arkansas plants.

Refer to Note 21, Subsequent Events, for further information.

As of April 24, 2021, we had five major manufacturing locations and seven regional distribution centers in the United States and three facilities in Mexico to support our speed-to-market and customization strategy.

In the first quarter of fiscal 2021, we announced the closure of our Newton, Mississippi upholstery manufacturing facility.

Subsequent to the announced closure of our Newton facility, consumers continued to allocate more discretionary spending to home furnishings and as a result, the demand for our products outpaced our production capacity.

In response, our supply chain team continues to demonstrate agility and flexibility to identify ways to increase production capacity on both an opportunistic and permanent basis.

We have increased capacity by adding manufacturing cells at our Mexico Cut-and-Sew Center, adding full second shifts and weekend production shifts to our U.S.

plants, and temporarily re-activating a portion of our Newton, Mississippi upholstery manufacturing facility.

Further, during the third quarter of fiscal 2021 we opened a leased upholstery assembly plant, in San Luis Rio Colorado, Mexico.

We operate a wholesale sales office that is responsible for distribution of our product in the United Kingdom and Ireland.

We operate a global trading company in Hong Kong which helps us manage our Asian supply chain by establishing and maintaining relationships with our Asian suppliers, as well as identifying efficiencies and savings opportunities.

We also participate in two joint ventures in Thailand that support our international businesses:

one that operates a manufacturing facility and another that operates a wholesale sales office.

We participate in two consolidated joint ventures in Thailand that support our international businesses:

one that operates a manufacturing

facility and another that operates a wholesale sales office.

We also have contracts with several suppliers in Asia to produce products that support our pure import model for casegoods.

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In total, we have approximately 7.9 million square feet of proprietary floor space dedicated to selling La-Z-Boy branded products in North America.

We also have approximately 2.7 million square feet of floor space outside of North America dedicated to selling La-Z-Boy branded products.

We also have approximately 3.0 million square feet of floor space outside of the United States and Canada dedicated to selling La-Z-Boy branded products.

Our other brands, England, American Drew, Hammary, and Kincaid enjoy distribution through many of the same outlets, with approximately half of Hammary’s sales originating through the La-Z-Boy Furniture Galleries ® store network.

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• Our branded distribution channels, which include the La-Z-Boy Furniture Galleries ® store network and the La-Z-Boy Comfort Studio ® locations, our store-within-a-store format .

We expect this initiative to generate growth in our Retail segment through an increased company-owned store count and in our wholesale Upholstery segment as our proprietary

distribution network expands.

We expect this initiative to generate growth in our Retail segment through an increased company-owned store count and in our Wholesale segment as our proprietary distribution network expands.

We are not only focused on growing the number of locations, but also on upgrading existing store locations to our new concept designs.

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In addition to our branded distribution channels, nearly 2,000 other dealers sell La-Z-Boy products, providing us the benefit of multi-channel distribution.

These outlets include some of the best-known names in the industry, including Slumberland, Nebraska Furniture Mart and Mathis Brothers.

Our other brands, England, American Drew, Hammary, and Kincaid, enjoy distribution through many of the same outlets.

These outlets include some of the best-known names in the industry, including Slumberland, Nebraska Furniture Mart, Mathis Brothers and Raymour & Flanagan.

Our other brands in the Wholesale segment, England, American Drew, Hammary, and Kincaid, enjoy distribution through many of the same outlets.

We believe there is significant growth potential for our brands through these retail channels.

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To stimulate growth, our Live Life Comfortably ® marketing campaign features celebrity brand ambassador, Kristen Bell, and focuses on expanding our digital marketing and e-commerce capabilities to build traffic across our multiple digital and physical properties.

Millennial actress and social media influencer, Kristen Bell, injects youthful style and sensibility into our marketing campaign which enhances the appeal of our brand with a younger customer base.

As a millennial actress and social media influencer, Kristen injects youthful style and sensibility into our marketing campaign which enhances the appeal of our brand with a younger customer base.

Further, we are driving change throughout our digital platforms to improve the user experience, with a specific focus on the ease by which customers browse through our broad product assortment, customize products to their liking, find stores to make a purchase, or purchase at www.la-z-boy.com.

Our innovative products, including stain-resistant iClean™ and eco-friendly Conserve ™ fabrics and our power products, some of which include a wireless hand remote, dual mechanisms and articulating headrests .

Our innovation, duo ® , is a revolutionary product line that features the look of stationary furniture with the power to recline at the push of a button.

We are committed to innovation throughout our business, and to support these efforts we opened our new state-of-the-art Innovation Center in January 2019 at our Dayton, Tennessee campus.

• Our innovative products, including stain-resistant iClean™ and eco-friendly Conserve ™ fabrics and our power products, some of which include a wireless hand held remote, dual mechanisms and articulating headrests .

Our innovation, duo ® , is a revolutionary product line that features the look of stationary furniture with the power to recline

at the push of a button.

We are committed to innovation throughout our business, and to support these efforts we opened our new state-of-the-art Innovation Center in fiscal 2019 at our Dayton, Tennessee campus.

• Our multi-faceted online strategy to participate in and leverage the growth of online furniture sales.

On July 30, 2018, we purchased Joybird, a leading e-commerce retailer and manufacturer of upholstered furniture, which positions us for growth in the ever-changing online selling environment and allows us to better reach millennial and Gen X consumers and leverage our supply chain assets.

During fiscal 2019, we purchased Joybird, a leading e-commerce retailer and manufacturer of upholstered furniture, which positions us for growth in the ever-changing online selling environment and allows us to better reach millennial and Gen X consumers and leverage our supply chain assets.

In addition, we continue to increase online sales of La-Z-Boy furniture through la-z-boy.com and other digital players, such as Wayfair.

Our reportable operating segments are the Upholstery segment, the Casegoods segment and the Retail segment.

Upholstery Segment .

Our Upholstery segment is our largest business segment and consists primarily of two operating segments:

La-Z-Boy, our largest operating segment, and the operating segment for our England subsidiary.

The Upholstery segment also includes our international wholesale businesses.

We aggregate these operating segments into one reportable segment because they are economically similar and because they meet the other aggregation criteria for determining reportable segments.

Our Upholstery segment manufactures and imports upholstered furniture such as recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas.

The Upholstery segment sells directly to La-Z-Boy Furniture Galleries ® stores, operators of La-Z-Boy Comfort Studio ® locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.

Casegoods Segment.

Our Casegoods segment consists of one operating segment that sells furniture under three brands:

Our reportable operating segments include the Wholesale segment and the Retail segment.

Effective in the first quarter of fiscal 2021, in order to better align with the manner in which we view and manage the business, coupled with economic and customer channel similarities, we revised our reportable operating segments by aggregating the former Upholstery segment with the former Casegoods segment to form the newly combined Wholesale segment.

The change in our reportable operating segments reflects how the Company evaluates financial information used to make operating decisions.

There were no changes to our Retail operating segment or Corporate & Other as part of this revision.

• Wholesale Segment .

Our Wholesale segment consists primarily of three operating segments:

La-Z-Boy, our largest operating segment, our England subsidiary, and our casegoods operating segment that sells furniture under three brands:

American Drew ® , Hammary ® , and Kincaid ® .

The Casegoods segment is an importer, marketer, and distributor of casegoods (wood) furniture such as bedroom sets, dining room sets, entertainment centers and occasional pieces, and also manufactures some custom upholstered furniture.

The Casegoods segment sells directly to major dealers, as well as La-Z-Boy Furniture Galleries ® stores, and a wide cross-section of other independent retailers.

The Wholesale segment also includes our international wholesale businesses.

We aggregate these operating segments into one reportable segment because they are economically similar and meet the other aggregation criteria for determining reportable segments.

Our Wholesale segment manufactures and imports upholstered furniture, such as recliners and motion furniture, sofas, loveseats, chairs, sectionals, modulars, ottomans and sleeper sofas and imports casegoods (wood) furniture, such as occasional pieces, bedroom sets, dining room sets and entertainment centers.

The Wholesale segment sells directly to La-Z-Boy Furniture Galleries ® stores, operators of La-Z-Boy Comfort Studio ® locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.

• Retail Segment.

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Impact of COVID-19

For a discussion of how COVID-19 has impacted and may continue to impact our business and financial condition, please refer to the discussion under the heading "Recent Developments" in Part I, Item 1 of this report.

For a discussion of how COVID-19 has impacted and may continue to impact our business and financial condition, please refer to the discussion under the heading "COVID-19 Impact" in Part I, Item 1 of this report.

Results of Operations

The following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2020 as compared to fiscal year 2019.

The following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2021 as compared with fiscal year 2020.

See “Results of Operations” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2020 Annual Report on Form 10-K, filed with the SEC on June 23, 2020, for an analysis of the fiscal year 2020 results as compared to fiscal year 2019.

1 unchanged sentence

La-Z-Boy Incorporated

(FY20 vs FY19)

(Amounts in thousands, except percentages)

(52 weeks) (52 weeks) (FY21 vs FY20)

(Amounts in thousands, except percentages) 4/24/2021 4/25/2020 % Change

Sales $ 1,734,244 $ 1,703,982 1.8 %

Operating income 136,736 118,762 15.1 %

Operating margin 7.9% 7.0%

Consolidated sales in fiscal 2020 declined $41.4 million compared with the prior year primarily due to lower sales in our Upholstery segment, partially offset by the benefit of a full year of sales from our Joybird and Retail segment acquisitions which occurred in the second quarter of fiscal 2019.

In the first three quarters of fiscal 2020, consolidated sales increased 3.5%, or $45.1 million , driven primarily by strong sales in our Upholstery and Retail segments.

This trend reversed in the fourth quarter due to the impact of COVID-19.

Fiscal 2020 fourth quarter sales were down $86.5 million when compared to the fourth quarter last year, resulting in a 2.4% decrease in full year fiscal 2020 consolidated sales compared with last year.

Consolidated sales in fiscal 2021 increased 1.8%, or $30.3 million, compared with the prior year led by higher sales in our Retail segment and Joybird business, partially offset by a slight decline in our Wholesale segment.

In early fiscal 2021, sales were adversely affected by the impact of COVID-19 which caused temporary store closures in the latter part of the fourth quarter of fiscal 2020 and a phased reopening in the first two months of fiscal 2021.

In addition, temporary closures of our manufacturing facilities, had a negative impact on our ability to deliver product to our customers.

Since retail and manufacturing locations reopened by the end of the first quarter of fiscal 2021, we have experienced a strong pace of written order trends and in response we have continued to scale our manufacturing capabilities to meet demand.

Despite lower sales in the first half of fiscal 2021 due to the challenges of COVID-19, the sustained increase in demand for our products, our strong execution at the store level, and our ramp up of manufacturing capacity contributed to higher consolidated sales in fiscal 2021 compared with fiscal 2020.

Operating Margin

Operating margin, which is calculated as operating income as a percentage of sales, decreased 40 basis points in fiscal 2020 compared with the prior year.

Operating margin, which is calculated as operating income as a percentage of sales, increased 90 basis points in fiscal 2021 compared with the prior year.

• Gross margin increased 40 basis points during fiscal 2021 compared with fiscal 2020.

Changes in our consolidated sales mix improved gross margin by 90 basis points in fiscal 2020 compared to last year.

This benefit was driven by the growth of our Retail segment and Joybird, which have higher gross

margins than our Upholstery and Casegoods segments.

tariff exclusions issued in the fourth quarter of fiscal 2020 related to sewn fabric and leather sets and actuators imported from China, we recognized a one-time $16.3 million benefit in cost of sales for the rebate of previously paid tariff costs which resulted in a 100 basis point increase in gross margin.

Additionally, gross margin benefited from lower raw material commodity costs in our Upholstery segment during the year.

Most of that benefit was offset by the temporary shutdown of our manufacturing facilities in the fourth quarter due to COVID-19, inflationary pressures in our supply chain, and costs incurred in

connection with our supply chain optimization initiative resulting from the shift in manufacturing operations from closed facilities to other manufacturing locations in fiscal 2020.

◦ Changes in our consolidated sales mix improved gross margin by 70 basis points in fiscal 2021 compared with last year.

This benefit was driven by the growth of our Retail segment and Joybird, which have higher gross margins than our Wholesale segment.

◦ Joybird experienced significant improvements in gross margin in fiscal 2021, primarily resulting from product pricing actions taken, an increase in average ticket, favorable product mix, and synergies due to its integration into our broader supply chain operations.

As we build on the trajectory of the Joybird business, we will continue to balance investments in top-line growth with bottom-line performance.

◦ Through fiscal 2021, the expansion of manufacturing capacity in response to written order demand drove an increase in production costs and unfavorable product mix which negatively impacted gross margin.

◦ Further, challenges in the global supply chain caused by COVID-19 and an increase in demand resulted in higher raw material and freight costs throughout fiscal 2021, which were largely offset by pricing actions taken in response to these higher costs.

◦ Partially offsetting these increases, due to U.S.

tariff exclusions issued in the fourth quarter of fiscal 2020 related to sewn fabric and leather sets and actuators imported from China, during fiscal 2020 we recognized a one-time $16.3 million benefit in cost of sales for the rebate of previously paid tariff costs, the absence of which in fiscal 2021 negatively impacted gross margin by 100 basis points.

• Selling, general, and administrative ("SG&A") expense as a percentage of sales increased 100 basis points during fiscal 2021 compared with fiscal 2020.

◦ Changes in the fair value of the Joybird contingent consideration liability resulted in a 130 basis point increase in SG&A as a percentage of sales.

During the fourth quarter of fiscal 2020, the fair value of the Joybird contingent consideration liability was reduced by its full carrying value of $7.9 million as we no longer expected any additional consideration amount would be owed based on our financial projections at that time.

S ince the first quarter of fiscal 2021, Joybird has seen significant improvement in its operating results and as a result, during fiscal 2021 we recognized a $14.1 million pre-tax charge to increase the fair value of the Joybird contingent consideration liability, as based on our most recent financial projections, we expect consideration will be owed under the terms of the earnout agreement.

◦ Incentive compensation costs increased $21.7 million in fiscal 2021 compared with last year, a 120 basis point increase in SG&A as a percentage of sales.

The increase was primarily due to certain financial metrics exceeding incentive targets in fiscal 2021 whereas certain financial metrics in fiscal 2020 were lower than incentive targets, primarily due to the impact of COVID-19.

◦ Fiscal 2020 included the sale of our Redlands facility, which resulted in a $9.7 million pre-tax gain, while fiscal 2021 included expenses resulting from our business realignment.

The absence of the prior year gain and incremental expenses in fiscal 2021 drove a comparative 70 basis point increase in SG&A expense as a percentage of sales.

◦ Changes in our consolidated sales mix increased SG&A expenses as a percentage of sales by 60 basis points in fiscal 2021 compared with last year.

This increase was driven by the growth of our Retail segment and the acquisition of Joybird, which have higher levels of SG&A expense as a percent of sales than our Upholstery and Casegoods segments.

SG&A as a percent of sales was negatively impacted by lower fiscal 2020 sales volume compared to last year due to the impact of COVID-19.

Incentive compensation costs decreased $15.6 million in fiscal 2020 compared with last year, a 90 basis point decrease in SG&A as a percentage of sales.

Certain financial metrics in fiscal 2020 were lower than incentive targets primarily due to the impact of COVID-19 in the fourth quarter.

Bad debt expense increased $13.3 million in fiscal 2020, an 80 basis point increase in SG&A as a percent of sales, compared with last year.

This increase was primarily due to the write-off of receivables related to the bankruptcy proceedings of Art Van Furniture Group during the fourth quarter of fiscal 2020, as well as an increase in the provision for credit losses recorded in the fourth quarter of fiscal 2020 related to COVID-19 economic conditions.

The sale of our Redlands facility, which resulted in a $9.7 million pre-tax gain, drove a 60 basis point improvement in SG&A expense as a percent of sales in fiscal 2020.

The fair value of the Joybird contingent consideration liability was reduced by its full carrying value of $7.9 million resulting in a 50 basis point benefit to SG&A as a percent of sales in fiscal 2020, as we no longer expect any additional consideration amounts will be owed related to the acquisition of Joybird based on our most recent financial projections and the terms of the earnout agreement.

In fiscal 2019 we recognized a one-time $3.8 million benefit due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 20 basis point increase in SG&A as a percent of sales.

This increase was driven by the growth of our Retail segment and Joybird, which have higher levels of SG&A expense as a percentage of sales than our Wholesale segment.

◦ Partially offsetting these increases, SG&A expense as percentage of sales benefited from cost reduction initiatives taken throughout fiscal 2021, which included reduced marketing and advertising spend due to strong order demand and less administrative expenses resulting from COVID-19.

◦ Additionally, offsetting the increases was a $16.9 million decrease in bad debt expense, resulting in a 100 basis point decrease in SG&A as a percentage of sales.

The higher bad debt expense in fiscal 2020 was primarily due to the write-off of receivables related to the bankruptcy proceedings of Art Van Furniture Group during the fourth quarter of fiscal 2020, along with an increased provision for credit losses due to uncertain economic conditions resulting from COVID-19.

• During fiscal 2020 we recorded a $26.9 million goodwill impairment charge related to our Joybird reporting unit.

Annual goodwill impairment testing, which occurred in the fourth quarter of 2020, determined the carrying value of the Joybird reporting unit exceeded its relative fair value.

The impairment charge decreased operating margin by 150 basis points in fiscal 2020.

The impairment was most notably driven by the impact of the COVID-19 pandemic on our future financial projections used in the fiscal 2020 impairment test, which were significantly lower than those used in the fiscal 2019 impairment test.

Additionally, our future financial projections have been tempered by integration activities taking longer than anticipated and a slower than anticipated revenue growth rate due to a shifting focus on profitability.

Annual goodwill impairment testing, which occurred in the fourth quarter of 2020, determined the carrying value of the Joybird reporting unit exceeded its relative fair value, most notably driven by the impact of COVID-19 on our financial projections at the time.

The absence of the impairment charge in fiscal 2021 increased operating margin by 150 basis points.

Refer to Note 7, Goodwill and Other Intangible Assets, for further information.

We explain these items further when we discuss each segment's results later in this Management's Discussion and Analysis.

Upholstery Segment

(FY20 vs FY19)

(Amounts in thousands, except percentages)

Operating income

Operating margin

The Upholstery segment’s sales declined 5.0% , or $64.0 million , in fiscal 2020 compared with fiscal 2019.

For the first three quarters of fiscal 2020, sales increased 0.6% , or $6.0 million , compared with the same period a year ago.

Sales trends experienced in the first three quarters of fiscal 2020 were impacted in the fourth quarter by COVID-19, which caused temporary closures of our manufacturing facilities, state and local restrictions limiting our ability to deliver product to customers, and store closures.

For full year fiscal 2020, unit volume was 5.6% lower than the prior year.

We also experienced a shift in product mix to sectionals which drove lower sales of our higher-priced products including power motion sofas and leather products, resulting in 0.7% lower sales in fiscal 2020.

Partially offsetting these decreases, in response to tariffs imposed

on goods imported from China, our tariff surcharges increased sales by 1.1% in fiscal 2020, compared with last year.

The tariff rate on goods from China was increased to 25% at the start of the current fiscal year, compared with 10% in the prior year.

Operating Margin

Our Upholstery segment's operating margin increased 110 basis points in fiscal 2020 compared with fiscal 2019 .

Gross margin increased 150 basis points during fiscal 2020 compared with fiscal 2019 .

This resulted in a 130 basis point benefit in gross margin compared with the prior year.

Lower raw material commodity prices provided a 120 basis point increase to the segment’s gross margin compared with the prior year.

Partially offsetting these benefits, were the temporary shut down of our manufacturing facilities in the fourth quarter due to COVID-19, as well as inflationary pressures in our supply chain, which negatively impacted gross margin for the full fiscal year, as did costs recognized in connection with our supply chain optimization initiative.

Together, these items decreased gross margin 100 basis points compared with the prior year.

Additionally, the prior year included a one-time benefit due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 10 basis point decrease in the segment's gross margin.

SG&A expense as a percentage of sales increased 40 basis points during fiscal 2020 compared with fiscal 2019 .

SG&A as a percent of sales was negatively impacted by lower fiscal 2020 sales volume due to the impact of COVID-19.

Bad debt expense increased SG&A as a percent of sales 100 basis points primarily due to the write-off of receivables related to the bankruptcy proceedings of Art Van Furniture Group during the fourth quarter of fiscal 2020, as well as an increase in the provision for credit losses recorded in the fourth quarter of fiscal 2020 related to COVID-19 economic conditions.

These items were partially offset by a $9.7 million pre-tax gain on the sale of the Redlands facility recognized in fiscal 2020 which provided an 80 basis point benefit to SG&A expense as a percent of sales.

Additionally, lower incentive compensation costs d ue to fiscal 2020 financial performance against incentive targets decreased SG&A expense as a percent of sales by 40 basis points .

Casegoods Segment

(FY20 vs FY19)

(Amounts in thousands, except percentages)

Wholesale Segment

(52 weeks) (52 weeks) (FY21 vs FY20)

(Amounts in thousands, except percentages) 4/24/2021 4/25/2020 % Change

Sales $ 1,301,298 $ 1,310,294 (0.7) %

Operating income 134,312 142,440 (5.7) %

Operating margin 10.3% 10.9%

Our Casegoods segment's sales decreased $8.4 million in fiscal 2020 compared with fiscal 2019 , due to continued lower sales volume on certain occasional tables that have been impacted by higher tariff costs with a further decline in the fourth quarter of fiscal 2020 due to the impact of COVID-19 which resulted in the closure of retail channels and disruption in our supply chain.

The Wholesale segment's sales declined 0.7%, or $9.0 million, in fiscal 2021 compared with fiscal 2020.

At the beginning of fiscal 2021, sales were adversely affected due to the impact of COVID-19, which caused temporary store and manufacturing closures in the latter part of the fourth quarter of fiscal 2020 and a phased reopening in the first two months of fiscal 2021.

Since reopening at the end of the first quarter of fiscal 2021, we have continued to expand and scale our manufacturing capabilities in response to significant increases in order demand.

The pace at which we have been able to ramp production during fiscal 2021 was hampered by COVID-19-related hiring and supply chain challenges and contributed to unfavorable product mix.

Despite these challenges during fiscal 2021, the Wholesale segment's delivered unit volume was higher than in fiscal 2020, primarily driven by higher production capacity and shipments in the fourth quarter.

In addition to higher volume, sales in fiscal 2021 benefited from favorable pricing actions taken in response to rising manufacturing costs.

Operating Margin

Our Casegoods segment's operating margin decreased 370 basis points in fiscal 2020 compared with the prior year.

Gross margin decreased 300 basis points during fiscal 2020 compared with fiscal 2019 , primarily due to higher ocean freight costs, the impact of tariffs on certain occasional tables and lower absorption of fixed costs on a decrease in sales driven by the impact of COVID-19.

SG&A expense as a percentage of sales increased 70 basis points during fiscal 2020 compared with fiscal 2019 .

Bad debt expense increased SG&A as a percent of sales 80 basis points , primarily due to the write-off of receivables and an increase in the provision for credit losses related to COVID-19 economic conditions, both recorded in the fourth quarter of fiscal 2020.

In fiscal 2019 we recognized a one-time benefit due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 20 basis point increase.

These increases were partially offset by lower incentive compensation costs d ue to fiscal 2020 financial performance against incentive targets and disciplined spending in response to lower sales volume.

Our Wholesale segment's operating margin decreased 60 basis points in fiscal 2021 compared with fiscal 2020.

• Gross margin decreased 200 basis points during fiscal 2021 compared with fiscal 2020.

◦ Due to U.S.

tariff exclusions issued in the fourth quarter of fiscal 2020 related to sewn fabric and leather sets and actuators imported from China, during fiscal 2020, we recognized a one-time $16.3 million benefit in cost of sales for the rebate of previously paid tariff costs, the absence of which in fiscal 2021 resulted in a 120 basis point decrease in gross margin.

◦ Through fiscal 2021, the expansion of manufacturing capacity in response to written order demand drove an increase in production costs which resulted in a 60 basis point decrease in gross margin, along with a 90 basis point decrease due to unfavorable product mix.

◦ Higher written order demand along with an increase in production capacity in the latter part of fiscal 2021 resulted in a 50 basis point increase in gross margin due to higher delivered sales volume.

◦ Fiscal 2020 also included supply chain initiative costs, primarily associated with the closure of our Redlands manufacturing facility, which were higher when compared with the expenses resulting from our business realignment actions in fiscal 2021.

The absence of higher business initiative costs in fiscal 2021 resulted in a comparative 30 basis point improvement in gross margin for fiscal 2021.

◦ Further, rising raw material and freight costs throughout fiscal 2021 due to higher demand and global supply chain challenges were largely offset by pricing actions taken in response to these higher costs.

• SG&A expense as a percentage of sales decreased 140 basis points during fiscal 2021 compared with fiscal 2020.

◦ SG&A as a percentage of sales decreased in fiscal 2021 primarily due to disciplined expense management related to our spending on advertising given the strong order demand and less administrative expenses resulting from COVID-19.

◦ Bad debt expense decreased $16.9 million in fiscal 2021 compared with fiscal 2020, resulting in a 130 basis point decrease in SG&A as a percentage of sales.

◦ Fiscal 2020 also included the sale of our Redlands facility, which resulted in a $9.7 million pre-tax gain, while fiscal 2021 included expenses resulting from our business realignment actions.

The absence of the prior year gain and incremental expenses in fiscal 2021 drove a comparative 90 basis point increase in SG&A expense as a percentage of sales.

Retail Segment

(FY20 vs FY19)

(Amounts in thousands, except percentages)

(52 weeks) (52 weeks) (FY21 vs FY20)

(Amounts in thousands, except percentages) 4/24/2021 4/25/2020 % Change

Sales $ 612,906 $ 598,554 2.4 %

Operating income 46,724 48,256 (3.2) %

Operating margin 7.6% 8.1%

Our Retail segment's full year sales increased 5.0% , or $28.4 million , driven by strong sales in the first three quarters of fiscal 2020 that were disrupted by COVID-19, which resulted in temporary store closures in the fourth quarter and negatively impacted our sales trajectory.

For the first three quarters of fiscal 2020, sales increased 9.7% , or $40.6 million , compared with the same period a year ago.

However, fiscal 2020 fourth quarter sales were down $12.2 million , compared with the same period a year ago.

Fiscal 2020 full year sales included $22.2 million from acquired stores and delivered a same-store sales increase of 0.7% , or $4.1 million .

To demonstrate the impact of COVID-19 on our Retail segment, same-store delivered sales in the first three quarters of fiscal 2020 were up 3.6% , driven by improved traffic trends and continued strong execution at the store level, but were down 10.0% in the fourth quarter, reflecting the impact of store closures and state and local restrictions limiting our ability to deliver product to consumers.

Our Retail segment's full year sales increased 2.4%, or $14.4 million, as a 0.8% decline in delivered same-stores sales was more than offset by an $18.8 million benefit from delivered sales related to our Seattle-based stores which we acquired during the second quarter of fiscal 2021.

The slight decrease in delivered same-store sales was primarily due to the impact that COVID-19 had during the fourth quarter of fiscal 2020, which led to a phased reopening of our retail locations throughout the first two months of fiscal 2021, combined with COVID-19-related production challenges that our Wholesale segment experienced throughout the first three quarters of fiscal 2021.

Despite these challenges, since the re-opening of all of our retail stores, we have continued to experience strong sales trends.

Written same-store sales were up 33.9% for the full year and 114% for the fourth quarter compared with their respective periods last year, driven by increased demand for products in the home furnishings category and strong execution at the store level.

Same-store delivered sales include the sales of all currently active stores which have been open for each comparable period.

Operating Margin

Our Retail segment's operating margin increased 140 basis points in fiscal 2020 compared with the prior year.

Gross margin increased 40 basis points during fiscal 2020 compared with fiscal 2019 , primarily due to favorable product mix and higher purchase accounting charges in fiscal 2019 due to prior year acquisitions, the absences of which in fiscal 2020 resulted in a comparative 20 basis point increase.

SG&A expense as a percentage of sales decreased 100 basis points during fiscal 2020 compared with fiscal 2019 , primarily due to acquired stores which operate with lower SG&A expense as a percentage of sales compared with our existing stores.

Additionally, we were better able to leverage our fixed costs (primarily advertising and occupancy) on increased delivered sales in the first three quarters of fiscal 2020, but some of this benefit was negated in the fourth quarter of fiscal 2020 due to the impact of COVID-19.

Additionally, incentive compensation costs were lower in fiscal 2020 compared with the prior year due to current year performance against incentive targets.

Partially offsetting these items, the prior year included a one-time benefit due to changes to our employee vacation policies, the absence of which in fiscal 2020 resulted in a comparative 20 basis point increase.

Our Retail segment's operating margin decreased 50 basis points in fiscal 2021 compared with the prior year.

• Gross margin remained flat during fiscal 2021 compared with fiscal 2020.

• SG&A expense as a percentage of sales increased 50 basis points during fiscal 2021 compared with fiscal 2020, primarily due to higher selling expenses driven by a significant increase in written sales on which we pay commission, along with higher fixed costs, relative to sales, including rent expense and building maintenance.

These items were partially offset by lower advertising expense given the strong demand and efforts made during the beginning of fiscal 2021 to reduce discretionary spend.

Corporate and Other

(FY20 vs FY19)

(Amounts in thousands, except percentages)

(52 weeks) (52 weeks) (FY20 vs FY19)

(Amounts in thousands, except percentages) 4/24/2021 4/25/2020 % Change

Sales $ 127,370 $ 89,092 43.0 %

Eliminations (307,330) (293,958) 4.5 %

Operating loss (44,300) (71,934) (38.4) %

Sales increased $38.3 million in fiscal 2021 compared with fiscal 2020, primarily due to a $33.9 million increase from Joybird, which contributed $109.2 million in sales in fiscal 2021.

Joybird sales were down 29.6% in the fourth quarter of fiscal 2020 due to COVID-19 and the temporary closure of our manufacturing facilities and the impact of state and local restrictions limiting our ability to deliver product to consumers.

Joybird was acquired at the start of the second quarter of fiscal 2019,

therefore, the sales comparison for the full year includes the benefit of one additional quarter of sales in fiscal 2020.

Eliminations increased in fiscal 2020 compared with fiscal 2019 due to higher sales from our Upholstery and Casegoods segments to our Retail segment, resulting from increased sales in the Retail segment and the impact of acquired stores.

The increase in Joybird sales was primarily driven by strong written order trends throughout the fiscal year as we continue to experience increased demand for products in the home furnishings category, coupled with investments in marketing and website improvements which increased online traffic and conversion.

Written sales for Joybird were up 64.5% in fiscal 2021 compared with fiscal 2020.

Eliminations increased in fiscal 2021 compared with fiscal 2020 due to higher sales from our Wholesale segment to our Retail segment, driven by increased sales in the Retail segment.

Operating Loss

Our Corporate and Other operating loss was $23.2 million higher in fiscal 2020 compared with fiscal 2019 , primarily due to a $26.9 million non-cash pre-tax impairment charge to reduce the carrying value of goodwill associated with Joybird.

Annual goodwill impairment testing, which occurred in the fourth quarter of 2020, determined the carrying value of the Joybird reporting unit exceeded its relative fair value.

Refer to Note 7, Goodwill and Other Intangible Assets, for further information.

Also impacting fiscal 2020 compared with the prior year was a larger Joybird operating loss, primarily due to our integration efforts taking longer than anticipated, and the fourth quarter impact of COVID-19.

This was partially offset by the reversal of the fair value of the Joybird contingent consideration liability by its full carrying value of $7.9 million , as we no longer expect any additional consideration amounts will be owed related to the acquisition of Joybird based on our most recent financial projections and the terms of the earnout agreement.

Further, corporate incentive compensation costs decreased $7.4 million in fiscal 2020 compared with last year, as certain fiscal 2020 financial metrics were lower than incentive targets primarily due to the impact of COVID-19 in the fourth quarter.

Our Corporate and Other operating loss was $27.6 million lower in fiscal 2021 compared with fiscal 2020.

• A $26.9 million non-cash pre-tax impairment charge in fiscal 2020 reduced the carrying value of goodwill associated with our Joybird reporting unit.

During our fiscal 2020 annual goodwill impairment testing, which occurred in the fourth quarter of 2020 at the onset of the COVID-19 pandemic, we determined the carrying value of the Joybird reporting unit exceeded its relative fair value based on our financial projections at that time which were largely driven by economic uncertainties due to COVID-19 and slower than anticipated integration activities.

• During the fourth quarter of fiscal 2020 we reversed the fair value of the Joybird contingent consideration liability by its full carrying value of $7.9 million pre-tax as, at that time, we no longer expected any additional consideration amounts would be owed related to the Joybird acquisition.

Since the first quarter of fiscal 2021, Joybird has seen significant improvement in its operating results and, as a result, during fiscal 2021 we recognized a $14.1 million pre-tax charge to increase the fair value of the Joybird contingent consideration liability as, based on our most recent financial projections, we expect consideration will be owed under the terms of the earnout agreement.

• The impact of the Joybird contingent consideration adjustments made in fiscal 2021 and fiscal 2020 were more than offset by significant improvements in Joybird's operating profit compared with the prior year, primarily resulting from product pricing actions taken, an increase in average ticket, favorable product mix, and synergies due to its integration into our broader supply chain operations.

As we build on the trajectory of the Joybird business, we will continue to balance investments in top-line growth with bottom-line performance.

• Corporate incentive compensation costs increased $14.9 million in fiscal 2021 compared with last year, as certain financial metrics in fiscal 2021 were higher than incentive targets whereas certain financial metrics in fiscal 2020 were lower than incentive targets, primarily due to the impact of COVID-19.

Fourth Quarter of Fiscal Year 2021 vs.

Fourth Quarter of Fiscal Year 2020

The fourth quarter of fiscal 2020 started strong for the company, led by written same-store sales increasing 20.4% for the La-Z-Boy Furniture Galleries® network in the month of February.

However, the trajectory of our sales growth and financial results for the quarter were significantly and negatively impacted by the temporary closure of our manufacturing facilities for four weeks, state and local restrictions limiting our ability to deliver product to consumers, and the temporary closure of our company-owned stores consistent with most retailers across North America beginning in mid-March due to COVID-19.

This impact significantly changed sales and profit trends for the company and as a result, we are providing this additional discussion of our fiscal 2020 fourth quarter results.

Financial results for the fourth quarter of fiscal 2020 were negatively impacted by COVID-19 due to the temporary closure of our manufacturing facilities for four weeks, state and local restrictions limiting our ability to deliver product to consumers, and the temporary closure of our company-owned stores consistent with most retailers across North America beginning in mid-

Since that time, sales and profit trends for the Company have significantly changed and, as a result, we are providing this additional discussion of our fiscal 2021 fourth quarter results.

Quarter Ended

(Unaudited, amounts in thousands) 4/24/21 4/25/20

Wholesale $ 384,001 $ 274,687

Retail 193,535 139,660

Corporate and Other 43,221 18,560

Eliminations (101,287) (65,626)

Consolidated sales $ 519,470 $ 367,281

Operating Income (Loss)

Upholstery segment

Casegoods segment

Wholesale segment $ 39,003 $ 30,245

Retail segment 23,551 14,984

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Consolidated operating income $ 50,058 $ 13,426

Consolidated sales in the fourth quarter of fiscal 2020 , compared with the same period last year, decreased 19.1% to $367.3 million .

Consolidated operating income for the quarter was $13.4 million , down $23.7 million compared with the same period last year and operating margin decreased to 3.7% compared with 8.2% in the prior-year quarter.

In the fourth quarter of fiscal 2020, sales in the company’s Upholstery segment decreased 21.7% to $253.3 million .

Operating margin in the Upholstery segment increased to 11.8% compared with 11.5% in last year’s fourth quarter, primarily due to a one-time $16.3 million benefit in cost of sales for the rebate of previously paid tariffs on sewn fabric and leather sets and actuators imported from China, along with favorable commodity costs.

In the fourth quarter of fiscal 2020, SG&A as a percent of sales was higher than the same period last year, primarily due to lower sales volume, partially offset by lower incentive compensation costs and expense reductions in response to the impact of COVID-19 including temporary salary reductions, lower wages attributable to furloughed employees, and a decrease in advertising expense and non-essential spending.

Additionally, bad debt expense recognized in the period was higher, due to the bankruptcy proceedings of Art Van Furniture Group, and a provision for credit losses due to COVID-19 economic conditions.

Sales in the Casegoods segment in the fourth quarter of fiscal 2020 decreased 19.7% to $21.4 million and operating margin was 1.9% compared with 9.1% in the prior-year period, primarily reflecting the impact of COVID-19, related temporary manufacturing facility and retail closures and an increase in bad debt expense, due to the write-off of receivables and a provision for credit losses due to COVID-19 economic conditions.

Sales in the Retail segment decreased only 8.0% to $139.7 million in the fourth quarter of fiscal 2020 , due to strong prior period written sales which were delivered during the period.

Operating margin in the Retail segment improved to 10.7% from 8.4% in last year’s fourth quarter primarily due to lower operating expenses related to closed stores and prior quarter written sales driving continued deliveries through the period.

Additionally, as a part of our COVID-19 response plan, operating expenses decreased in the fourth quarter of fiscal 2020 due to lower wages for furloughed employees, temporary salary reductions, and a decrease in advertising expense and non-essential spending.

Same-store sales declined 10.0% in the fourth quarter of fiscal 2020 compared with the same period last year due to store closures in the last four weeks of the period.

Fiscal 2020 fourth quarter sales for Joybird, which are reported in Corporate & Other, decreased 29.6% to $15.4 million , and resulted in a larger loss versus the same quarter last year.

The increase in Joybird's operating losses when compared with the same quarter last year are primarily due a $26.9 million non-cash pre-tax impairment charge to reduce the carrying value of the Joybird reporting unit's goodwill, which was partially offset by the reduction of the fair value of the Joybird contingent consideration liability by its full carrying value of $7.9 million .

Additionally, operating income was negatively impacted in the fourth quarter of fiscal 2020 by lower sales volume, the temporary closure of our manufacturing facilities and the impact of state and local restrictions limiting our ability to deliver product to consumers due to COVID-19.

Interest Expense

Interest expense was $0.3 million lower in fiscal 2020 compared with fiscal 2019 .

The decrease in interest expense in fiscal 2020 was primarily due to lower average short-term borrowings during the year.

A draw of $75.0 million on our credit line was proactively taken in the fourth quarter of 2020 to manage liquidity in response to the economic impact of COVID-19.

Primarily due to the length of borrowings outstanding but also due to lower interest rates, interest expense on the borrowings in fiscal 2020 was lower than interest expense on prior year borrowings.

A draw of $35 million on our credit line was taken in the second quarter of fiscal 2019 and repaid by the end of fiscal 2019, and was used to help fund our acquisitions during that year.

Pension Termination Charge

During the fourth quarter of fiscal 2019, we terminated our defined benefit pension plan for eligible factory hourly employees in our La-Z-Boy operating unit.

In connection with the plan termination, we settled all future obligations under the plan through a combination of lump-sum payments to eligible participants who elected to receive them, and transferred any remaining benefit obligations under the plan to a highly rated insurance company.

We recognized a non-cash pre-tax charge of $32.7 million in our consolidated statement of income associated with the plan termination during the fourth quarter of fiscal 2019.

During the second quarter of fiscal 2020, we received a pre-tax refund of $1.9 million from the insurance company, representing an overpayment of the expected benefit obligations that were settled during the fourth quarter of fiscal 2019.

Consolidated sales in the fourth quarter of fiscal 2021 increased 41.4% to $519.5 million, compared with the same period last year.

Consolidated operating income for the quarter was $50.1 million, up $36.6 million compared with the same period last year and operating margin rose to 9.6% compared with 3.7% in the prior-year quarter.

In the fourth quarter of fiscal 2021, sales in the Wholesale segment increased 39.8% to $384.0 million, primarily due to lower volume last year resulting from COVID-19-related shutdowns.

Operating margin in the Wholesale segment decreased to 10.2% in the fourth quarter of fiscal 2021, compared with 11.0% in last year’s fourth quarter due to a lower gross margin partially offset by improved SG&A as a percentage of sales.

Lower gross margin was primarily due to last year's one-time $16.3 million benefit in cost of sales for the rebate of previously paid tariffs on sewn fabric and leather sets and actuators imported from China, along with rising raw material and freight costs in the current year.

SG&A as percentage of sales decreased in the fourth quarter of fiscal 2021 compared to the same period last year, primarily due to higher sales volume and lower bad debt expense as the fourth quarter of fiscal 2020 included a charge related to the bankruptcy proceedings of Art Van Furniture Group and a provision for credit losses due to COVID-19 economic conditions.

These improvements in SG&A as a percentage of sales were partially offset by higher incentive compensation costs.

Sales in the Retail segment increased 38.6% to $193.5 million in the fourth quarter of fiscal 2021, led by a $46.8 million increase in delivered same-store sales coupled with $7.4 million from our Seattle-based stores which we acquired during the second quarter of fiscal 2021.

The increase in same-store delivered sales was primarily due to continued strong demand in the home furnishings category throughout fiscal 2021, combined with a reduction in sales in the prior year due to store closures in the last four weeks of fiscal 2020.

Operating margin in the Retail segment improved to 12.2% in the fourth quarter of fiscal 2021, from 10.7% in the fourth quarter last year.

This improvement was primarily due to the significant increase in delivered sales relative to higher SG&A expenses driven by an increase in selling costs due to higher written sales.

In the fourth quarter of fiscal 2021, sales for Joybird, which are reported in Corporate & Other, increased 144% to $37.7 million, driven by strong written order trends as we continue to experience increased demand for products in the home furnishings category, coupled with investments in marketing and website improvements which increased online traffic and conversion.

Operating loss in Corporate & Other decreased $19.3 million, primarily due to the $26.9 million non-cash pre-tax impairment charge in fiscal 2020 to reduce the carrying value of the Joybird reporting unit's goodwill, which was partially offset by the changes in the fair value of the Joybird contingent consideration liability in both fiscal 2020 and fiscal 2021 noted above.

Additionally, Joybird's operating results significantly improved in the fourth quarter of fiscal 2021 compared with the same quarter last year in which Joybird operated at a loss.

The improvement in Joybird's operating results in the fourth quarter of 2021 was led by higher sales and synergies leveraged as we continue to integrate Joybird into the overall business.

Interest Expense and Interest Income

Interest expense was $0.1 million higher and interest income was $1.7 million lower in fiscal 2021 compared with fiscal 2020.

The decline in interest income was primarily due to lower interest rates on our interest-bearing investments.

Pension Termination Refund

During the second quarter of fiscal 2020 we received a pre-tax refund of $1.9 million from the settlement of our defined-benefit pension plan in our La-Z-Boy operating unit, which occurred during the fourth quarter of fiscal 2019.

We recognized the refund in our consolidated statement of income, consistent with the charge recorded in the fourth quarter of fiscal 2019.

Other Expense, Net

Other expense, net was $4.7 million higher in fiscal 2020 compared with fiscal 2019 , due to a $6.0 million impairment of our investment in a privately held start-up company in fiscal 2020, partially offset by lower pension related costs in fiscal 2020 as compared with the prior year, due to the termination of our defined benefit pension plan in the fourth quarter of fiscal 2019.

Other Income (Expense), Net

Other income (expense), net was $9.5 million of income in fiscal 2021 compared with $7.0 million of expense in fiscal 2020.

The income in fiscal 2021 was primarily due to the benefit of $5.2 million of payroll tax credits resulting from the CARES Act along with unrealized gains on investments.

The expense in fiscal 2020 was primarily due to a $6.0 million impairment of our investment in a privately held start-up company along with unrealized losses on investments.

Our effective income tax rate was 26.3% for fiscal 2021 and 31.4% for fiscal 2020.

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Absent discrete adjustments, the effective tax rate in fiscal 2020 would have been 26.4%.

Impacting our effective tax rate for fiscal 2019 was a net tax expense of $1.2 million primarily from the tax expense of the defined benefit pension plan termination of $2.6 million and a net tax benefit of $1.4 million primarily from excess tax benefits from shared-based payments.

Absent discrete adjustments, the effective tax rate in fiscal 2019 would have been 25.1% .

Liquidity and Capital Resources

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We maintain a revolving credit facility secured primarily by all of our accounts receivable, inventory, cash deposit and securities accounts.

Availability under the agreement fluctuates according to a borrowing base calculated on eligible accounts receivable and inventory.

Availability under the agreement fluctuates according to a borrowing base calculated on eligible accounts receivable and inventory, net of customer deposits.

We amended this agreement on December 19, 2017, extending its maturity date to December 19, 2022.

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In response to economic conditions resulting from COVID-19, to strengthen our financial position and maintain liquidity, the Company proactively borrowed $75.0 million from our revolving credit facility in the fourth quarter of 2020.

At April 25, 2020 , we were not subject to the fixed-charge coverage ratio requirement and had excess availability of $55.5 million of the $150.0 million credit commitment.

Excess availability was lower than the total remaining credit commitment primarily due to lower eligible assets as of April 25, 2020, which were primarily lower eligible accounts receivable due to lower sales in the quarter as a result of the impact of COVID-19.

Subsequently, considering business performance, liquidity and trends during the first six months of fiscal 2021, $25.0 million was repaid in the first quarter of fiscal 2021 and $50.0 million was repaid in the second quarter of fiscal 2021, bringing the outstanding balance on our revolving credit facility to zero.

As of April 24, 2021, borrowings outstanding under the revolving credit facility remain at zero and we were not subject to the fixed-charge coverage ratio requirement and had excess availability of $61.7 million of the $150.0 million credit commitment.

Excess availability was lower than the total remaining credit commitment primarily due to higher reserves required due to the $140.0 million increase in customer deposits during fiscal 2021.

Capital expenditures for fiscal 2021 were $38.0 million compared with $46.0 million for fiscal 2020.

Capital expenditures were lower in fiscal 2020, primarily due to the elimination of non-essential spending in the fourth quarter of fiscal 2020 to maintain liquidity in response to lower sales volume due to COVID-19.

Fiscal year 2020 capital expenditures primarily included manufacturing machinery and equipment, upgrades to our Dayton, Tennessee upholstered furniture manufacturing facility and improvements to select retail stores.

Fiscal year 2021 capital expenditures primarily included spending on manufacturing machinery and equipment, improvements to select retail stores, costs for new production capacity in Mexico, and upgrades to our upholstered furniture manufacturing plant in Dayton, Tennessee.

We have no material contractual commitments outstanding for future capital expenditures.

We expect capital expenditures to be in the range of $25 to $40 million for fiscal 2021, largely dependent on liquidity and scaled in response to the recovery of the business environment, economic conditions, and consumer demand for our products.

Our fiscal 2021 capital spending will reflect essential maintenance spending, other projects as business conditions permit, and projects that have already begun, which will include plant upgrades to our upholstery manufacturing and distribution facilities in Dayton, Tennessee and Neosho, Missouri, technology upgrades and improvements to several of our retail stores.

We expect capital expenditures to be in the range of $55 to $65 million for fiscal 2022, which will include improvements to a number of our retail stores, plant upgrades to our upholstery manufacturing and distribution facilities in Neosho, Missouri, new upholstery manufacturing capacity in Mexico, and technology upgrades.

In response to the COVID-19 pandemic, in the fourth quarter of fiscal 2020, we took action to conserve cash in the near term.

Actions taken at that time included the furlough of approximately 70% of our workforce while our manufacturing and retail operations were temporarily closed, temporary 50% salary reductions for our executive team and 25% salary reductions for the rest of our salaried workforce, along with the temporary suspension of our 401(k) match, cash compensation for the board of

directors and our share repurchase program.

Further, effective as of June 4, 2020, the Company reduced its global workforce by about 10% across its manufacturing, retail and corporate locations, including the closure of its Newton, Mississippi upholstery manufacturing facility.

As of the end of the first quarter of fiscal 2021, our manufacturing facilities and stores had all re-opened and the majority of our furloughed employees had returned to work.

Full base salaries were reinstated as of June 1, 2020, for all employees other than the named executive officers of the Company.

As of August 1, 2020, full base salaries were reinstated for our named executive officers, as were the Company's 401(k) match and cash compensation for the board of directors.

Our board of directors has sole authority to determine if and when we will declare future dividends and on what terms.

Over the past year, the following actions were taken pertaining to dividends.

• As announced on March 29, 2020, the June 2020 dividend was eliminated to preserve near-term financial flexibility in response to the impact of COVID-19.

In accordance with our long-term capital allocation strategy, we will seek to return value to our shareholders through dividends and share repurchases when it becomes appropriate to do so.

Future cash dividends will depend on our earnings, capital requirements, financial condition, excess availability under our credit agreement and other factors considered relevant by us and will be subject to final determination by our board of directors.

In addition to the items noted above, we have taken swift action to conserve cash in the near term.

Some of those actions include the furlough of approximately 70% of our workforce while our manufacturing and retail operations were temporarily closed, temporary 50% salary reductions for our executive team and 25% salary reductions for the rest of our salaried workforce, the temporary suspension of our 401(k) match and our share repurchase program.

As of our filing date, our manufacturing facilities and stores are open and thus far we are pleased with consumer traction.

In addition, the majority of our furloughed employees are expected to return to work by July 1, 2020.

The temporary salary reductions instituted on March 29, 2020, ended and full base salaries were reinstated as of June 1, 2020, for all employees other than the executive officers of the Company.

The 50% salary reductions for our executive officers remain in effect as of the date of this filing.

• On August 18, 2020, the board of directors elected to reinstate a regular quarterly dividend to shareholders of $0.07 per share, 50% of the dividend amount paid quarterly prior to the Company's suspension of dividends.

This dividend was paid on September 15, 2020, to shareholders of record as of September 3, 2020.

• On November 17, 2020, the board of directors declared a quarterly dividend to shareholders of $0.14 per share.

This returned the quarterly dividend to the full amount paid quarterly prior to the Company's suspension of dividends.

The dividend was paid on December 15, 2020, to shareholders of record as of December 2, 2020.

• On February 16, 2021, the board of directors declared a quarterly dividend to shareholders of $0.15 per share, an increase of $0.01 per share or 7%.

The dividend was paid on March 15, 2021, to shareholders of record as of March 4, 2021.

Our board of directors has authorized the repurchase of Company stock.

As announced on March 29, 2020, share repurchases under the board of directors’ prior authorization were temporarily halted to prioritize near-term financial flexibility in response to the impact of COVID-19, as such, there were no share repurchases in the first and second quarters of fiscal 2021.

On December 14, 2020, we resumed share repurchases under the previous share repurchase authorization, pursuant to which 3.4 million shares remain available for purchase.

The authorization has no expiration date.

We repurchased 1.1 million shares during fiscal 2021 for a total of $44.2 million.

We believe our cash flows from operations, present cash, cash equivalents and restricted cash balance of $394.7 million, short- and long-term investments to enhance returns on cash of $32.5 million, and current excess availability under our credit facility of $61.7 million, will be sufficient to fund our business needs, including fiscal 2022 contractual obligations of $316.3 million as presented in our contractual obligations table.

Included in our cash, cash equivalents and restricted cash at April 25, 2020 , is $53.4 million held by foreign subsidiaries, a portion of which we have determined to be permanently reinvested.

Included in our cash, cash equivalents and restricted cash at April 24, 2021, is $101.9 million held by foreign subsidiaries, approximately 30% of which we have determined to be permanently reinvested.

The following table illustrates the main components of our cash flows:

Fiscal Year Ended

(52 weeks) (52 weeks)

(Amounts in thousands) 4/24/2021 4/25/2020

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During fiscal 2021, net cash provided by operating activities was $309.9 million.

Our cash provided by operating activities was primarily attributable to net income generated during fiscal 2020 and a $29.7 million decrease in receivables driven by lower sales volume at the end of the fiscal year due to COVID-19, partially offset by a $18.4 million lower accrued compensation costs due to fiscal 2020 financial performance against incentive targets.

Our cash provided by operating activities was primarily attributable to a $140.0 million increase in customer deposits driven by the increase in written Retail and Joybird sales in the period and net income, including non-cash adjustments, generated during the period.

During fiscal 2020, net cash provided by operating activities was $164.2 million.

Our cash provided by operating activities was primarily attributable to net income generated during fiscal 2019 as well as a $12.9 million increase in payroll and other compensation due to higher accrued incentive compensation costs that were paid in the first quarter of fiscal 2020.

Our cash provided by operating activities was primarily attributable to net income generated during fiscal 2020 as well as a $29.7 million decrease in receivables driven by

lower sales volume at the end of the fiscal year due to COVID-19, partially offset by $18.4 million lower accrued compensation costs due to fiscal 2020 financial performance against incentive targets.

Investing Activities

During fiscal 2021, net cash used for investing activities was $40.7 million, primarily due to cash used for capital expenditures in the period of $38.0 million, which primarily related to spending on manufacturing machinery and equipment, improvements to select retail stores, costs for new production capacity in Mexico, and upgrades to our upholstered furniture manufacturing facility in Dayton, Tennessee.

Additionally, cash used for acquisitions was $2.0 million, related to the acquisition of the assets of the Seattle, Washington business that operated six independently owned La-Z-Boy Furniture Galleries ® stores and one warehouse.

During fiscal 2020, net cash used for investing activities was $33.9 million, primarily due to $46.0 million used for capital expenditures.

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Spending was lower in fiscal 2020 than expected due to cancellation of non-essential capital expenditures in the fourth quarter due to COVID-19.

During fiscal 2019, net cash used for investing activities was $122.6 million , primarily due to $76.5 million used for acquisitions and $48.4 million used for capital expenditures.

Our cash used for acquisitions during the period included the acquisition of the assets of two independent operators of La-Z-Boy Furniture Galleries ® stores, one that operated nine stores and two warehouses in Arizona and one that operated one store in Massachusetts, as well as the acquisition of Joybird, an e-commerce retailer and manufacturer of upholstered furniture.

Our capital expenditures during the year primarily related to spending on manufacturing machinery and equipment, construction of our new Innovation Center, upgrades to our Dayton, Tennessee upholstered furniture manufacturing facility, expansion of our England subsidiary's plant and construction of their new corporate office building, and relocation of one of our regional distribution centers.

Financing Activities

During fiscal 2021, net cash used for financing activities was $141.1 million, primarily due to $75.0 million in payments on our revolving credit facility, $44.2 million used to repurchase our common stock pursuant to our share repurchase authorization, $16.5 million paid to our shareholders in quarterly dividends, and $8.5 million in dividends paid to our joint venture minority partners, resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested.

During fiscal 2020, net cash provided by financing activities was $2.6 million, which included a $75.0 million draw under our revolving credit facility, partially offset by $43.4 million used to repurchase shares of our common stock pursuant to the board's prior authorization and $25.1 million paid to our shareholders in quarterly dividends.

Share repurchases under the board's prior authorization were temporarily halted to prioritize near-term financial flexibility in response to the impact of COVID-19.

During fiscal 2019, net cash used for financing activities was $32.8 million , which included $23.0 million used to repurchase our common stock pursuant to our share repurchase authorization and $23.5 million paid to our shareholders in quarterly dividends.

This was partly offset by $13.9 million in cash received upon exercise of employee stock awards, net of shares withheld for taxes.

Our board of directors has authorized the repurchase of company stock.

As of April 25, 2020 , 4.5 million shares remained available for purchase pursuant to this authorization.

The authorization has no expiration date.

We repurchased 1.4 million shares during fiscal 2020 for a total of $43.4 million .

Reinstatement of a share repurchase program under the board’s prior authorization will depend on our earnings, capital requirements, financial condition and other factors that we consider to be relevant, such as the timing and extent of the economic recovery and the consumer demand for our products.

Exchange Rate Changes

Due to changes in exchange rates, our cash, cash equivalents, and restricted cash increased by $3.0 million from the end of fiscal year 2020 to the end of fiscal year 2021.

These changes impacted our cash balances held in Canada, Thailand, and the United Kingdom.

The following table summarizes our contractual obligations of the types specified as of April 24, 2021:

Payments Due by Period

(Amounts in thousands)

(Amounts in thousands) Total Less than

Years More than

Operating lease obligations $ 403,394 $ 78,079 $ 128,154 $ 86,426 $ 110,735

Purchase obligations (1)

Debt obligations

212,630 212,630 — — —

Future guaranteed payments 25,445 15,445 10,000 — —

Legal liability

Interest obligations

Capital lease obligations

Contingent consideration 14,100 10,000 4,100 — —

Finance lease obligations 618 130 260 228 —

Total contractual obligations $ 656,187 $ 316,284 $ 142,514 $ 86,654 $ 110,735

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We do not expect our continuing compliance with existing federal, state and local statutes dealing with protection of the environment to have a material effect on our capital expenditures, earnings, competitive position or liquidity.

Critical Accounting Policies

Unaudited Quarterly Financial Information Fiscal 2021

Fiscal Quarter Ended (13 weeks) (13 weeks) (13 weeks) (13 weeks)

(Amounts in thousands, except per share data) 7/25/2020 10/24/2020 1/23/2021 4/24/2021

Sales $ 285,458 $ 459,120 $ 470,196 $ 519,470

Cost of sales 169,095 258,565 268,944 297,380

Gross profit 116,363 200,555 201,252 222,090

Selling, general and administrative expense 112,038 152,616 166,838 172,032

Operating income 4,325 47,939 34,414 50,058

Interest expense (459) (346) (298) (287)

Interest income 494 123 285 199

Other income (expense), net 1,474 (11) 6,532 1,471

Income before income taxes 5,834 47,705 40,933 51,441

Income tax expense 1,155 12,401 11,344 13,484

Net income 4,679 35,304 29,589 37,957

Net income attributable to noncontrolling interests 119 (369) (357) (461)

Net income attributable to La-Z-Boy Incorporated $ 4,798 $ 34,935 $ 29,232 $ 37,496

Diluted weighted average common shares 45,965 46,323 46,818 46,316

Diluted net income attributable to La-Z-Boy Incorporated per share $ 0.10 $ 0.75 $ 0.62 $ 0.81

Unaudited Quarterly Financial Information Fiscal 2020

Fiscal Quarter Ended (13 weeks) (13 weeks) (13 weeks) (13 weeks)

(Amounts in thousands, except per share data) 7/27/2019 10/26/2019 1/25/2020 4/25/2020

Sales $ 413,633 $ 447,212 $ 475,856 $ 367,281

Cost of sales 245,921 264,823 276,218 195,575

Gross profit 167,712 182,389 199,638 171,706

Selling, general and administrative expense 144,290 152,788 147,325 131,418

Goodwill impairment — — — 26,862

Operating income 23,422 29,601 52,313 13,426

Interest expense (318) (308) (265) (400)

Interest income 727 522 844 692

Pension termination charge — 1,900 — —

Other income (expense), net (760) (532) (5,998) 307

Income before income taxes 23,071 31,183 46,894 14,025

Income tax expense 5,083 8,279 12,178 10,649

Net income 17,988 22,904 34,716 3,376

Net income attributable to noncontrolling interests 81 (311) (204) (1,081)

Net income attributable to La-Z-Boy Incorporated $ 18,069 $ 22,593 $ 34,512 $ 2,295

Diluted weighted average common shares 47,125 46,879 46,584 46,157

Diluted net income attributable to La-Z-Boy Incorporated per share $ 0.38 $ 0.48 $ 0.74 $ 0.05

Critical Accounting Estimates

We prepare our consolidated financial statements in conformity with U.S.

generally accepted accounting principles.

generally accepted accounting principles ("US GAAP").

In some cases, these principles require management to make difficult and subjective judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly impact our financial results and disclosures.

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Actual results could differ from these estimates, assumptions, and judgments and these differences could be significant.

We make frequent comparisons throughout the year of actual experience to our assumptions to reduce the likelihood of significant adjustments.

We make frequent

comparisons throughout the year of actual experience to our assumptions to reduce the likelihood of significant adjustments.

We record adjustments when differences are known.

The following critical accounting policies affect our consolidated financial statements.

Revenue Recognition and Related Allowances

Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services.

We generate revenues primarily by manufacturing/importing and delivering upholstery and casegoods (wood) furniture products to independent furniture retailers, independently owned La-Z-Boy Furniture Galleries ® stores or the end consumer.

Each unit of furniture is a separate performance obligation, and we satisfy our performance obligation when control of our product is passed to our customer, which is the point in time that our customers are able to direct the use of and obtain substantially all of the remaining economic benefit of the goods or services.

The majority of our wholesale shipping agreements are freight-on-board shipping point and risk of loss transfers to our customer once the product is out of our control.

Accordingly, revenue is recognized for product shipments on third-party carriers at the point in time that our product is loaded onto the third-party container or truck and that container or truck leaves our facility.

For our imported products, we recognize revenue at the point in time that legal ownership is transferred, which may not occur until after the goods have passed through U.S.

In all cases, this revenue includes amounts we bill to customers for freight charges, because we have elected to treat shipping activities that occur after the customer has obtained control of our product as a fulfillment cost rather than an additional promised service.

Because of this election, we recognize revenue for shipping when control of our product passes to our customer, and the shipping costs are accrued when the freight revenue is recognized.

Revenue for product shipments on company-owned trucks is recognized for the product and freight at the point in time that our product is delivered to our customer's location.

We recognize revenue for retail sales and online sales to the end consumer through our company-owned retail stores, www.la-z-boy.com or www.joybird.com once the end consumer has taken control of the furniture, at which point legal title has passed to them.

This takes place when the product is delivered to the end consumer's home.

Home delivery is not a promised service to our customer, and is not a separate performance obligation, because home delivery is a fulfillment activity as the costs are incurred as part of transferring our product to the end consumer.

At the time the customer places an order through our company-owned retail stores or www.la-z-boy.com, we collect a deposit on a portion of the total merchandise price.

We record this as a customer deposit, which is included in accrued expenses and other current liabilities on our consolidated balance sheet.

The balance of the order is paid in full prior to delivery of the product.

Once the order is taken through our company-owned retail stores or www.la-z-boy.com we recognize a contract asset and a corresponding deferred revenue liability for the difference between the total order and the deposit collected.

The contract asset is included in other current assets on our consolidated balance sheet and the deferred revenue is included in accrued expenses and other current liabilities on our consolidated balance sheet.

At the time the customer places an order through www.joybird.com, we collect the entire amount owed and record this as a customer deposit.

Because the entire amount owed is collected at the time of the order, there is no contract asset recorded for Joybird sales.

At the time we recognize revenue, we make provisions for estimated refunds, product returns, and warranties, as well as other incentives that we may offer to customers.

When estimating our incentives, we utilize either the expected value method or the most likely amount to determine the amount of variable consideration.

We use either method depending on which method will provide the best estimate of the variable consideration, and we only include variable consideration when it is probable that there will not be a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is subsequently resolved.

Incentives offered to customers include cash discounts, rebates, advertising agreements and other sales incentive programs.

Our sales incentives, including cash discounts and rebates, are recorded as a reduction to revenues.

Service allowances are for a distinct good or service received from our customer and are recorded as a component of SG&A expense in our consolidated statement of income, and are not recorded as a reduction of revenue and are not considered variable consideration.

We use substantial judgment based on the type of variable consideration or service allowance, historical experience and expected sales volume when estimating these provisions.

Sales, value added, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue.

The expected costs associated with our warranties and service allowances are recognized as expense when our products are sold.

All orders are fulfilled within one year of order date, therefore we do not have any unfulfilled performance obligations.

Additionally, we elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component because at contract inception we expect the period between when we transfer our product to our customer and when the customer pays for the product to be one year or less.

Trade accounts receivable arise from the sale of products on trade credit terms.

On a quarterly basis, we review all significant accounts as to their past due balances, as well as collectability of the outstanding trade accounts receivable for possible write off.

It is our policy to write off the accounts receivable against the allowance account when we deem the receivable to be

uncollectible.

Additionally, we review orders from dealers that are significantly past due, and we ship product only when our ability to collect payment from our customer for the new order is probable.

Our allowance for credit losses reflects our best estimate of probable losses inherent in the trade accounts receivable balance.

We determine the allowance based on known troubled accounts, historic experience, and other currently available evidence.

Long-Lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of an asset or asset group.

Using either quoted market prices or an analysis of undiscounted projected future cash flows by asset groups, we determine whether there is any indicator of impairment requiring us to further assess the fair value of our long-lived assets.

Our asset groups consist of our operating segments in our Upholstery reportable segment, our Casegoods segment, each of our retail stores, our Joybird ® business and other corporate assets.

Intangible Assets and Goodwill

We test intangible assets and goodwill for impairment on an annual basis in the fourth quarter of each fiscal year, and more frequently if events or changes in circumstances indicate that an asset might be impaired.

We consider the following accounting estimates to be critical as they require us to make assumptions that are uncertain at the time the estimate was made and changes to the estimate would have a material impact on our financial statements.

Indefinite-Lived Intangible Assets and Goodwill

Indefinite-lived intangible assets include our American Drew trade name and the reacquired right to own and operate La-Z-Boy Furniture Galleries ® stores we have acquired.

We have amortizable intangible assets related to the acquisition of the La-Z-Boy wholesale business in the United Kingdom and Ireland, which are primarily comprised of acquired customer relationships.

We also have an amortizable trade name related to the Joybird ® acquisition.

We establish the fair value of our trade names and reacquired rights based upon the relief from royalty method.

We establish the fair value of our other amortizable intangible assets based on the multi-period excess earnings method, a variant of the income approach, and also using the relief from royalty method.

Prior to our retail acquisitions, we licensed the exclusive right to own and operate La-Z-Boy Furniture Galleries ® stores (and to use the associated trademarks and trade name) in those markets to the dealers whose assets we acquired, and we reacquired these rights when we purchased the dealers' other assets.

The reacquired right to own and operate La-Z-Boy Furniture Galleries ® stores are indefinite-lived because our Retailer Agreements are perpetual agreements that have no specific expiration date and no renewal options.

A Retailer Agreement remains in effect as long as the independent retailer is not in default under the terms of the agreement.

Our goodwill relates to the acquisition of La-Z-Boy Furniture Galleries ® stores and the La-Z-Boy wholesale business in the United Kingdom and Ireland, along with the acquisition of Joybird ® , an e-commerce retailer and manufacturer of upholstered furniture.

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The reporting unit for goodwill arising from the acquisition of the La-Z-Boy wholesale business in the United Kingdom and Ireland and the acquisition of Joybird is each respective business.

We establish the fair value for the reporting unit based on the discounted cash flows to determine if the fair value of our goodwill exceeds its carrying value.

Other Loss Reserves

We have various other loss exposures arising from the ordinary course of business, including inventory obsolescence, health insurance, litigation, environmental claims, insured and self-insured workers' compensation, restructuring charges, and product liabilities.

Establishing loss reserves requires us to use estimates and management's judgment with respect to risk and ultimate liability.

We use legal counsel or other experts, including actuaries as appropriate, to assist us in developing estimates.

Due to the uncertainties and potential changes in facts and circumstances, additional charges related to these reserves could be required in the future.

We have various excess loss coverages for health insurance, auto, product liability and workers' compensation liabilities.

Our deductibles generally do not exceed $1.5 million .

We use the asset and liability method to account for income taxes.

We recognize deferred tax assets and liabilities based on the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.

We measure deferred tax assets and liabilities using enacted tax rates in effect for the year in which we expect to recover or settle those temporary differences.

When we record deferred tax assets, we are required to estimate, based on forecasts of taxable earnings in the relevant tax jurisdiction, whether we are more likely than not to recover them.

In making judgments about realizing the value of our deferred tax assets, we consider historic and projected future operating results, the eligible carry-forward period, tax law changes and other relevant considerations.

We test indefinite-lived intangibles and goodwill for impairment on an annual basis in the fourth quarter of our fiscal year, or more frequently if events or changes in circumstances indicate that the carrying value might be impaired.

We have the option to first assess qualitative factors in order to determine if it is more likely than not that the fair value of our intangible assets or reporting units are greater than their carrying value.

If the qualitative assessment leads to a determination that the intangible asset/reporting unit’s fair value may be less than its carrying value, or if we elect to bypass the qualitative assessment altogether, we are required to perform a quantitative impairment test by calculating the fair value of the intangible asset/reporting unit and comparing the fair value with its associated carrying value.

When we perform the qualitative test for indefinite-lived intangible assets, we establish the fair value of our indefinite-lived trade names and reacquired rights based upon the relief from royalty method, which requires the use of significant estimates and assumptions including forecasted sales growth and royalty rates.

When we perform the quantitative test for goodwill, we establish the fair value for the reporting unit based on the income approach in which we utilize a discounted cash flow model.

This approach requires the use of significant estimates and assumptions including forecasted sales growth, operating income projections, and discount rates and changes in these assumptions may materially impact our fair value assessment.

Refer to Note 7, Goodwill and Other Intangible Assets, for further information regarding our fiscal 2021 impairment testing.

Amortizable Intangible Assets

We also have an amortizable trade name related to the Joybird ® acquisition.

We test amortizable intangible assets for impairment if events or changes in circumstances indicate that the assets might be impaired.

If we determine an assessment for impairment is necessary, we establish the fair value of these amortizable intangible assets based on the multi-period excess earnings method, a variant of the income approach, and the relief from royalty method, as applicable.

Product Warranties

We account for product warranties by accruing an estimated liability when we recognize revenue on the sale of warrantied product.

We estimate future warranty claims based on claim experience and any additional anticipated future costs on previously sold product.

We estimate future warranty claims on product sales based on claim experience and periodically make adjustments to reflect changes in actual experience.

We incorporate repair costs in our liability estimates, including materials, labor, and overhead amounts necessary to perform repairs, and any costs associated with delivering repaired product to our customers and consumers.

We use considerable judgment in making our estimates.

We record differences between our estimated and actual costs when the differences are known.

We use considerable judgment in making our estimates and record differences between our estimated and actual costs when the differences are known.

Stock-Based Compensation

We measure stock-based compensation cost for equity-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period.

We measure stock-based compensation cost for liability-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period.

We measure stock-based compensation cost for liability-based awards on the grant

date based on the awards' fair value and recognize expense over the vesting period.

We remeasure the liability for these awards and adjust their fair value at the end of each reporting period until paid.

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Treasury issues with a term equal to the expected life assumed at the date of grant.

We estimate forfeitures at the date of grant based on historic experience.

We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur.

We estimate the fair value of each performance award grant that vests based on a market condition using a Monte Carlo valuation model.

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The final payout of the award as calculated by the model is then discounted back to the grant date using the risk-free interest rate.

Both the Monte Carlo and Black-Scholes methodologies are based, in part, on inputs for which there are little or no observable market data, requiring us to develop our own assumptions.

Inherent in both of these models are assumptions related to expected stock-price volatility, expected life, risk-free interest rate, and dividend yield.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis