LA-Z-BOY INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We have prepared this Management’s Discussion and Analysis as an aid to understanding our financial results. It should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes to Consolidated Financial Statements. After a cautionary note regarding forward-looking statements, we begin with an introduction to our key businesses and then provide discussions of our results of operations, liquidity and capital resources, and critical accounting policies. Cautionary Note Regarding Forward-Looking Statements La-Z-Boy Incorporated and its subsidiaries (individually and collectively, "we," "our," "us," "La-Z-Boy" or the "Company") make "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. Generally, forward-looking statements include information concerning expectations, projections or trends relating to our results of operations, financial results, financial condition, strategic initiatives and plans, expenses, dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, future economic performance, business and industry and the effect of the novel coronavirus ("COVID-19") pandemic on our business operations and financial results. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements may include words such as "anticipates," "believes," "continues," "estimates," "expects," "feels," "forecasts," "hopes," "intends," "plans," "projects," "likely," "seeks," "short-term," "non-recurring," "one-time," "outlook," "target," "unusual," or words of similar meaning, or future or conditional verbs, such as "will," "should," "could," or "may." A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak to our views only as of the date of this report. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties, many of which are unforeseeable and beyond our control, such as the continuing and developing impact of, and uncertainty caused by, the COVID-19 pandemic. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial performance. Our actual future results and trends may differ materially from those we anticipate depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed in our Annual Report for the year ended April 24, 2021, under Item 1A, "Risk Factors" and Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in our Annual Report or any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or for any other reason. Introduction Our Business We are the leading global producer of reclining chairs and the second largest manufacturer/distributor of residential furniture in the United States . The La-Z-Boy Furniture Galleries ® stores retail network is the third largest retailer of single-branded furniture in the United States . We manufacture, market, import, export, distribute and retail upholstery furniture products under the La-Z-Boy ® , England, Kincaid ® , and Joybird ® tradenames. In addition, we import, distribute and retail accessories and casegoods (wood) furniture products under the Kincaid ® , American Drew ® , Hammary ® , and Joybird ® tradenames. As of October 23, 2021, our supply chain operations included the following: • Five major manufacturing locations and seven regional distribution centers in the United States and four facilities in Mexico to support our speed-to-market and customization strategy • A logistics company that distributes a portion of our products in the United States • A wholesale sales office that is responsible for distribution of our product in the United Kingdom and Ireland • 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 21 Table of Contents We also 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. Additionally, we also have contracts with several suppliers in Asia to produce products that support our pure import model for casegoods. We sell our products through multiple channels: to furniture retailers or distributors in the United States, Canada, and approximately 65 other countries, including the United Kingdom, China, Australia, South Korea and New Zealand, directly to consumers through retail stores that we own and operate, and through our websites, www.la-z-boy.com and www.joybird.com. • The centerpiece of our retail distribution strategy is our network of 351 La-Z-Boy Furniture Galleries ® stores and 560 La-Z-Boy Comfort Studio ® locations, each dedicated to marketing our La-Z-Boy branded products. We consider this dedicated space to be “proprietary.” ◦ La-Z-Boy Furniture Galleries ® stores help consumers furnish their homes by combining the style, comfort, and quality of La-Z-Boy furniture with our available design services. We own 159 of the La-Z-Boy Furniture Galleries ® stores, while the remainder are independently owned and operated. ◦ La-Z-Boy Comfort Studio ® locations are defined spaces within larger independent retailers that are dedicated to displaying and selling La-Z-Boy branded products. All 560 La-Z-Boy Comfort Studio ® locations are independently owned and operated. ◦ In total, we have approximately 7.8 million square feet of proprietary floor space dedicated to selling La-Z-Boy branded products in North America. ◦ 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 slightly over half of Hammary’s sales originating through the La-Z-Boy Furniture Galleries ® store network. ◦ Kincaid and England have their own dedicated proprietary in-store programs with 636 outlets and approximately 2.0 million square feet of proprietary floor space. ◦ In total, our proprietary floor space includes approximately 12.8 million square feet worldwide. • Joybird sells product primarily online and has a limited amount of proprietary retail showroom floor space it uses to develop its brand. Our goal is to deliver value to our shareholders over the long term through executing our strategic initiatives. The foundation of our strategic initiatives is driving profitable sales growth in all areas of our business. We plan to drive growth in the following ways: • Leveraging and reinvigorating our brand with a consumer focus and expanded omni-channel presence. Our strategic initiatives to leverage and reinvigorate our iconic La-Z-Boy brand center on a renewed focus on aging down our core consumer, leveraging the compelling La-Z-Boy comfort message, and accelerating our omni-channel offering. Our marketing platform featuring celebrity brand ambassador Kristen Bell drives brand recognition and injects youthful style and sensibility into our marketing campaign, which enhances the appeal of our brand with a younger consumer base. Further, our goal is to connect with consumers along their purchase journey through multiple means, whether online or in person. We are driving change throughout our digital platforms to improve the user experience, with a specific focus on the ease with 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. • Expanding the reach of 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 . While the consumer’s purchase journey may start digitally, our consumers also demonstrate an affinity for visiting our stores to shop, allowing us to deliver the flagship La-Z-Boy Furniture Galleries® store experience and provide design services. We expect our strategic initiatives in this area 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. • Growing our company-owned retail business. We are focused on growing this business by increasing same-store sales through improved execution at the store level and by acquiring existing La-Z-Boy Furniture Galleries ® stores and 22 Table of Contents opening new La-Z-Boy Furniture Galleries ® stores, primarily in markets that can be serviced through our regional distribution centers, where we see opportunity for growth, or where we believe we have opportunities for further market penetration. • Accelerating the growth of the Joybird brand. During fiscal 2019, we purchased Joybird, a leading e-commerce retailer and manufacturer of upholstered furniture with a direct-to-consumer model. We believe that Joybird is a brand with significant potential and our strategic initiatives in this area focus on fueling profitable growth through an increase in digital marketing spend to drive awareness and customer acquisition, ongoing investments in technology, an expansion of product assortment, and additional small format stores in our key urban markets to enhance our consumers' omni-channel experience. • Enhancing our enterprise capabilities to support the growth of our consumer brands and enable potential tack-on acquisitions for growth. 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, Mathis Brothers and Raymour & Flanagan. We believe there is significant growth potential for our consumer brands through these retail channels. Our strategic initiatives focus on enhancing our enterprise capabilities to support the growth of our consumer brands and improving the agility of our supply chain so that it can more broadly support all our consumer brands. Our reportable operating segments include the Wholesale segment and the Retail segment. • 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 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 bedroom sets, dining room sets, entertainment centers and occasional pieces. 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 . Our Retail segment consists of one operating segment comprised of our 159 company-owned La-Z-Boy Furniture Galleries ® stores. The Retail segment sells primarily upholstered furniture, in addition to some casegoods and other accessories, to end consumers through these stores. • Corporate & Other. Corporate & Other includes the shared costs for corporate functions, including human resources, information technology, finance and legal, in addition to revenue generated through royalty agreements with companies licensed to use the La-Z-Boy ® brand name on various products. We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segments, including our global trading company in Hong Kong and Joybird, an e-commerce retailer that manufactures upholstered furniture such as sofas, loveseats, chairs, ottomans, sleeper sofas and beds, and also imports casegoods (wood) furniture, such as occasional tables and other accessories. Joybird sells to the end consumer primarily online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meet the requirements of reportable segments. Impact of COVID-19 We have been and continue to be impacted by the COVID-19 pandemic. Specifically, beginning in the fourth quarter of fiscal 2020, the temporary closure of our manufacturing facilities, 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 negatively impacted our financial results. In response to the financial impacts of the pandemic, beginning at the end of fiscal 2020, we took several actions to conserve cash in the near term and during the first quarter of fiscal 2021, we announced our business realignment plan, which included the reduction of our global workforce by about 10% across our manufacturing, retail, and corporate locations, including the closure of our Newton, Mississippi upholstery manufacturing facility. By the end of the first quarter of fiscal 2021, all retail and manufacturing locations had reopened, and since that time, we have experienced a strong pace of written order trends as consumers continue to allocate more discretionary spending to home furnishings. In response to demand for our products outpacing our production capacity and with backlog still at a high level, our 23 Table of Contents supply chain team continues to demonstrate agility and flexibility to identify ways to increase production capacity. We have increased capacity by adding manufacturing cells at our Mexico Cut-and-Sew Center, adding second shifts and weekend production shifts to our U.S. plants, and temporarily reactivating a portion of our Newton, Mississippi upholstery manufacturing facility. In addition, we opened a leased upholstery assembly plant in San Luis Rio Colorado, Mexico and a leased sewing facility in Parras, Mexico during the third quarter of fiscal 2021 and the first quarter of fiscal 2022, respectively. Further, during the first quarter of fiscal 2022, we signed a lease to open additional manufacturing capacity in Torreon, Mexico which we expect to begin operations in the latter part of the third quarter of fiscal 2022. We continue to actively manage the impact of the COVID-19 crisis as we face continued uncertainty regarding the impact COVID-19 will have on our financial operations in the near and long term. We also continue to actively manage our global supply chain and manufacturing operations, which have been adversely impacted with respect to availability and pricing of raw materials and freight based on uncontrollable factors as well as COVID-19 related constraints on our manufacturing capacity as we continue to prioritize the health and safety of our employees. The need for, or timing of, any future actions in response to COVID-19 is largely dependent on the mitigation of the spread of the virus along with the adoption and continued effectiveness of vaccines, status of government orders, directives and guidelines, recovery of the business environment, global supply chain conditions, economic conditions, and consumer demand for our products, all of which are highly uncertain. Results of Operations Fiscal 2022 Second Quarter Compared with Fiscal 2021 Second Quarter La-Z-Boy Incorporated Quarter Ended Six Months Ended (Unaudited, amounts in thousands, except percentages) 10/23/2021 10/24/2020 % Change 10/23/2021 10/24/2020 % Change Sales $ 575,889 $ 459,120 25.4% $ 1,100,672 $ 744,578 47.8 % Operating income 54,113 47,939 12.9% 88,484 52,264 69.3 % Operating margin 9.4% 10.4% 8.0% 7.0% Sales Consolidated sales increased $116.8 million, or 25.4%, and $356.1 million, or 47.8%, in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. Sales in the first half of fiscal 2021 were adversely impacted by COVID-19, which caused temporary store and manufacturing facility closures in the latter part of the fourth quarter of fiscal 2020 and a phased reopening in the first two months of fiscal 2021, and had a negative impact on our ability to deliver product to 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 while facing challenges in the global supply chain. In response, we have expanded our manufacturing capacity, increased our strategic raw material reserves, and taken pricing and surcharge actions in response to rising materials costs. The ongoing impact of these strategic actions and sustained demand led to record sales in the second quarter of fiscal 2022. Operating Margin Operating margin, which is calculated as operating income as a percentage of sales, decreased 100 basis points in the second quarter of fiscal 2022, but increased 100 basis points in the first six months of fiscal 2022, compared with the same periods a year ago. • Gross margin, which is calculated as gross profit as a percentage of sales, decreased 490 basis points and 400 basis points in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. ◦ Changes in our consolidated mix reduced gross margin by 40 basis points but improved gross margin by 60 basis points in the second quarter and first six months of fiscal 2022, respectively. Our Retail segment and Joybird have higher gross margins than our Wholesale segment and, as such, the impact in the second quarter was due to growth in our Wholesale segment relative to growth in our Retail segment, whereas the benefit in the first six months was led by growth in our Retail segment and Joybird relative to growth in our Wholesale segment. ◦ Availability challenges in the global supply chain caused by COVID-19, as well as an increase in demand, led to higher raw material and freight costs resulting in a decline in gross margin. 24 Table of Contents ◦ Gross margin declined further as the expansion of our manufacturing capacity in response to the increase in written order demand led to higher production costs, mainly related to the start-up of new facilities, along with continued labor challenges. ◦ Partially offsetting these decreases, gross margin in our Wholesale segment benefited from pricing and surcharge actions taken in response to rising manufacturing costs. • Selling, general and administrative ("SG&A") expenses as a percentage of sales decreased 390 basis points and 500 basis points in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. ◦ Higher sales volume relative to both fixed costs and marketing spend in both the Wholesale and Retail segment drove the decrease during the second quarter and first six months of fiscal 2022. ◦ Additionally, the second quarter and first six months of fiscal 2022 included a gain resulting from the sale of our Newton, Mississippi manufacturing facility while the second quarter and first six months of fiscal 2021 included expenses resulting from our business realignment plan. These actions resulted in a comparative 60 basis point decrease in SG&A as a percentage of sales in both the second quarter and first six months of fiscal 2022. We discuss each segment’s results in the following section. Wholesale Segment Quarter Ended Six Months Ended (Unaudited, amounts in thousands, except percentages) 10/23/2021 10/24/2020 % Change 10/23/2021 10/24/2020 % Change Sales $ 439,092 $ 343,016 28.0% $ 832,591 $ 566,589 46.9 % Operating income 43,128 41,683 3.5% 61,459 59,623 3.1 % Operating margin 9.8% 12.2% 7.4% 10.5% Sales The Wholesale segment’s sales increased $96.1 million, or 28.0%, and $266.0 million, or 46.9%, in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. The sales increase in the second quarter was driven relatively equally by an increase in delivered unit volume and favorable pricing and surcharge actions taken in response to rising manufacturing costs. The sales increase in the first six months was primarily attributable to higher volume and to a lesser extent pricing and surcharge actions, as they were increasingly realized in the second quarter. Higher sales volume for both periods was primarily driven by the adverse impact that COVID-19 had in the prior year, 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 by 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. Operating Margin Operating margin decreased 240 basis points and 310 basis points in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. • Gross margin decreased 460 basis points and 510 basis points in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. ◦ Rising raw material and freight costs due to higher demand and global supply chain challenges resulted in a 800 basis point and 710 basis point decrease in gross margin in the second quarter and first six months of fiscal 2022, respectively. ◦ Continued manufacturing capacity expansion, in response to significant increases in written order demand, drove an increase in production costs and labor challenges resulting in a 280 basis point and 310 basis point decrease in gross margin in the second quarter and first six months of fiscal 2022, respectively. ◦ Partially offsetting these decreases, gross margin benefited 610 basis points and 460 basis points from pricing and surcharge actions taken in response to rising manufacturing costs in the second quarter and first six months of fiscal 2022, respectively. 25 Table of Contents • SG&A expense as a percentage of sales decreased 220 basis points and 200 basis points in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. ◦ The decrease in SG&A as a percentage of sales in both periods, was primarily due to higher sales volume relative to both fixed costs and marketing spend. ◦ The second quarter and first six months of fiscal 2022 included a gain resulting from the sale of our Newton, Mississippi manufacturing facility while the second quarter and first six months of fiscal 2021 included expenses resulting from our business realignment plan. These actions resulted in a comparative 70 basis point decrease in the segment's SG&A as a percentage of sales in both the second quarter and first six months of fiscal 2022. Retail Segment Quarter Ended Six Months Ended (Unaudited, amounts in thousands, except percentages) 10/23/2021 10/24/2020 % Change 10/23/2021 10/24/2020 % Change Sales $ 192,420 $ 162,275 18.6% $ 374,267 $ 253,412 47.7 % Operating income 23,962 15,093 58.8 % 44,400 8,466 424.5 % Operating margin 12.5% 9.3% 11.9% 3.3% Sales The Retail segment’s sales increased $30.1 million, or 18.6%, and $120.9 million, or 47.7%, in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago, led by a 16.5% and 43.8% increase in delivered same-store sales, respectively. The first half of fiscal 2021 was negatively impacted by COVID-19 related closures which began in the fourth quarter of fiscal 2020 followed by a phased reopening of our retail locations through the first two months of fiscal 2021. After the reopening of all our retail stores, we experienced a significant surge in demand and, as a result, when compared with the prior year, written same-store sales decreased 7.2% in the second quarter of fiscal 2022. However, we continue to see sustained higher demand for products in the home furnishings category and are continuing to experience strong sales trends as written same-store sales increased 5.4% in first six months of fiscal 2022 compared with the prior year. Compared to the pre-pandemic second quarter of fiscal 2020, written-same store sales in the second quarter of fiscal 2022 increased at a compound annual growth rate of 12.3%. Same-store delivered sales include the sales of all currently active stores which have been open for each comparable period. Operating Margin Operating margin increased 320 basis points and 860 basis points in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. • Gross margin decreased 150 basis points and 60 basis points in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago, primarily due to higher product costs from the pricing and surcharge actions taken in the manufacturing business. • SG&A expense as a percentage of sales decreased 470 basis points and 920 basis points in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago, primarily due to higher delivered sales relative to marketing spend and fixed costs, mainly occupancy and selling expenses. Corporate and Other Quarter Ended Six Months Ended (Unaudited, amounts in thousands, except percentages) 10/23/2021 10/24/2020 % Change 10/23/2021 10/24/2020 % Change Sales $ 45,013 $ 33,717 33.5% $ 88,647 $ 50,458 75.7 % Intercompany eliminations (100,636) (79,888) (26.0)% (194,833) (125,881) (54.8) % Operating loss (12,977) (8,837) (46.8)% (17,375) (15,825) (9.8) % Sales Sales increased $11.3 million and $38.2 million in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago, primarily led by Joybird sales which increased 36.6% to $40.2 million and 84.0% 26 Table of Contents to $78.9 million, respectively. The growth in Joybird sales was driven by increased demand for products in the home furnishings category, investments in marketing and website enhancements resulting in higher online conversion, and the addition of retail store locations. Further, sales in the first half of fiscal 2021 were negatively impacted by COVID-19, although to a lesser extent than our other retail businesses as Joybird primarily operates in the online, direct-to-consumer marketplace. Despite this, and driven by significant investments in marketing, written sales for Joybird were up 55.8% and 43.2% in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. Intercompany eliminations increased in the second quarter and first six months of fiscal 2022 compared with the same periods a year ago due to higher sales from our Wholesale segment to our Retail segment, driven by higher sales in the Retail segment. Operating Loss Our Corporate and Other operating loss increased $4.1 million and $1.6 million in the second quarter and first six months of fiscal 2022, respectively, compared with the same periods a year ago. The increase in operating loss in the second quarter of fiscal 2022 was primarily due to decreased operating profits at Joybird resulting from significant investments in marketing to drive customer acquisition and awareness combined with rising raw material and freight costs due to higher demand and global supply chain challenges. Despite raw material and freight headwinds, Joybird has sustained structural profitability and we will continue to invest in marketing to drive future growth. The increase in operating loss in the first six months of fiscal 2022 was primarily due to higher investments in our technology infrastructure and a slight decrease in Joybird operating profits for the reasons noted above. Non-Operating Income (Expense) Other Income (Expense), Net Other income (expense), net was $1.0 million of income in the second quarter of fiscal 2022 compared with de minimis expense in the second quarter of fiscal 2021. The income in fiscal 2022 was primarily due to unrealized gains on investments. Other income (expense), net was $0.9 million of income in the first six months of fiscal 2022 compared with $1.5 million of income in the first six months of fiscal 2021, both primarily due to unrealized gains on investments. Income Taxes Our effective tax rate was 26.6% and 26.3% for the second quarter and six months ended October 23, 2021, respectively, compared with 26.0% and 25.3% for the second quarter and six months ended October 24, 2020, respectively. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes. Liquidity and Capital Resources Our sources of liquidity include cash and cash equivalents, short-term and long-term investments, cash from operations, and amounts available under our credit facility. We believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, and fulfill other cash requirements for day-to-day operations and capital expenditures. We had cash, cash equivalents and restricted cash of $296.6 million at October 23, 2021, compared with $394.7 million at April 24, 2021. In addition, we had investments to enhance our returns on cash of $31.0 million at October 23, 2021, compared with $32.5 million at April 24, 2021. On October 15, 2021, we entered into a new five-year $200.0 million unsecured revolving credit facility (the “Credit Facility”). Borrowings under the Credit Facility may be used by the Company for general corporate purposes and working capital. We may increase the size of the facility, either in the form of additional revolving commitments or new term loans, subject to the discretion of each lender to participate in such increase, up to an additional amount of $100 million. The Credit Facility will mature on October 15, 2026 and provides us the ability to extend the maturity date for two additional one-year periods, subject to customary conditions. As of October 23, 2021, we have no borrowings outstanding under the Credit Facility. The Credit Facility contains certain restrictive loan covenants, including, among others, financial covenants requiring a maximum consolidated net lease adjusted leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as customary covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets. As of October 23, 2021, we were in compliance with our financial covenants under the Credit Facility. We believe our cash on hand, in addition to our available Credit Facility, will provide adequate liquidity for our business operations over the next 12 months. 27 Table of Contents The Credit Facility replaces our previous $150.0 million revolving credit facility, which had been secured primarily by all of our accounts receivable, inventory, cash deposits, and securities accounts. The previous revolving credit facility was terminated on October 15, 2021, and is no longer in effect. Capital expenditures for the first six months of fiscal 2022 were $33.3 million compared with $15.4 million during the first six months of fiscal 2021. Capital expenditures in the first six months of fiscal 2022 included improvements to our retail stores, plant upgrades to our upholstery manufacturing and distribution facilities, new upholstery manufacturing capacity in Mexico, and technology upgrades. We have no material contractual commitments outstanding for future capital expenditures. We expect capital expenditures to be in the range of $75 to $85 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. Our board of directors has sole authority to determine if and when we will declare future dividends and on what terms. We expect the board to continue declaring regular quarterly cash dividends for the foreseeable future, but it may discontinue doing so at any time. Our board of directors has authorized the repurchase of company stock. We spent $50.6 million in the first six months of fiscal 2022 to repurchase 1.4 million shares. On August 17, 2021, the board of directors approved a 6.5 million increase in its share repurchase authorization and as of October 23, 2021, 8.6 million shares remained available for repurchase pursuant to this authorization. The following table illustrates the main components of our cash flows: Six Months Ended (Unaudited, amounts in thousands) 10/23/2021 10/24/2020 Cash Flows Provided By (Used For) Net cash provided by operating activities (1) $ 15,434 $ 195,710 Net cash used for investing activities (32,472) (15,600) Net cash used for financing activities (80,728) (92,155) Exchange rate changes (330) 1,944 Change in cash, cash equivalents and restricted cash $ (98,096) $ 89,899 (1) The decrease in net cash provided by operating activities year over year is primarily due to the significant increase in customer deposits during fiscal 2021 resulting from a surge in written sales once retail stores reopened, along with a significant increase in inventory balances in fiscal 2022 to support increased sales demand and manufacturing capacity. Operating Activities During the first six months of fiscal 2022, net cash provided by operating activities was $15.4 million. Our cash provided by operating activities was primarily attributable to net income generated during the period partially offset by an increase in working capital. The increase in working capital was led by higher inventory to ensure input material availability to support increased sales demand and manufacturing capacity along with higher receivables due to increased sales. Investing Activities During the first six months of fiscal 2022, net cash used for investing activities was $32.5 million, primarily due to c ash used for capital expenditures in the period of $33.3 million, which primarily related to spending on retail store improvements, plant upgrades to our upholstery manufacturing and distribution facilities, new upholstery manufacturing capacity in Mexico, and technology upgrades. Financing Activities During the first six months of fiscal 2022, net cash used for financing activities was $80.7 million, primarily due to $50.6 million used to repurchase our common stock pursuant to our share repurchase authorization, $13.5 million of holdback payments for acquisition purchases, which primarily included contingent consideration and guaranteed payments related to the acquisition of Joybird, and $13.4 million paid to our shareholders in quarterly dividends. 28 Table of Contents Exchange Rate Changes Due to changes in exchange rates, our cash, cash equivalents, and restricted cash decreased by $0.3 million from the end of fiscal year 2021 to the end of the second quarter of fiscal 2022. These changes impacted our cash balances held in Canada, Thailand, and the United Kingdom. Other During the second quarter of fiscal 2022, there were no material changes to the information about our contractual obligations and commitments shown in the table contained in our Annual Report on Form 10-K for the fiscal year ended April 24, 2021. 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 We disclosed our critical accounting policies in our Annual Report on Form 10-K for the fiscal year ended April 24, 2021. There were no material changes to our critical accounting policies during the six months ended October 23, 2021. Recent Accounting Pronouncements See Note 1, Basis of Presentation, to the consolidated financial statements included in this Form 10-Q for a discussion of recently adopted accounting standards and other new accounting standards. 29 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the first six months of fiscal 2022, there were no material changes from the information contained in Item 7A of our Annual Report on Form 10-K for the fiscal year ended April 24, 2021.