What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-02-15 compared with 2021-11-16 · 103 added, 100 removed, 138 unchanged (60% 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 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

As of January 22, 2022, our supply chain operations included the following:

• Five major manufacturing locations and nine regional distribution centers in the United States and five 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

• An upholstery manufacturing business in the United Kingdom

• 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

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◦ 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.

• Joybird sells product primarily online and has a limited amount of proprietary retail showroom floor space including small format stores in key urban markets.

Our goal is to deliver value to our shareholders over the long term through executing our strategic initiatives.

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• 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 strategic initiatives to leverage and reinvigorate our iconic La-Z-Boy brand center on a renewed focus on leveraging the compelling La-Z-Boy comfort message, accelerating our omni-channel offering, and identifying additional consumer base growth opportunities.

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.

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• 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.

While the consumer’s purchase journey may start digitally, our consumers also demonstrate an affinity for visiting our stores to shop, allowing us to frequently deliver the flagship La-Z-Boy Furniture Galleries ® store, or La-Z-Boy Comfort Studio ® , 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.

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• 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

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.

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 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.

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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.

• Enhancing our enterprise capabilities to support the growth of our consumer brands and enable potential 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.

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American Drew ® , Hammary ® and Kincaid ® .

The Wholesale segment also includes our international wholesale businesses.

The Wholesale segment also includes our international wholesale and manufacturing 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.

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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.

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, and included 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

supply chain team continues to demonstrate agility and flexibility to identify ways to increase production capacity.

In response to demand for our products outpacing our production capacity and with backlog still at a high level, our 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.

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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.

Further, during the first quarter of fiscal 2022, we signed a lease to open additional manufacturing capacity in Torreon, Mexico which began operations at the end 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.

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Results of Operations

Fiscal 2022 Second Quarter Compared with Fiscal 2021 Second Quarter

Fiscal 2022 Third Quarter Compared with Fiscal 2021 Third Quarter

La-Z-Boy Incorporated

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except percentages) 1/22/2022 1/23/2021 % Change 1/22/2022 1/23/2021 % Change

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Operating margin 6.9% 7.3% 7.7% 7.1%

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.

Consolidated sales increased $101.4 million, or 21.6%, and $457.5 million, or 37.7%, in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago.

Since retail and manufacturing locations reopened after the COVID-related shutdowns at the beginning of fiscal 2021, we have experienced a strong pace of written order trends while facing challenges in the global supply chain.

In response to heightened demand, we have expanded our manufacturing capacity, increased our strategic raw material reserves, and taken pricing and surcharge actions to counteract rising materials and freight costs.

Despite continued supply chain headwinds, the ongoing impact of these strategic actions and sustained demand led to significant sales growth in the third quarter and first nine months of fiscal 2022 compared with the same periods a year ago.

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.

◦ 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.

Operating margin, which is calculated as operating income as a percentage of sales, decreased 40 basis points in the third quarter of fiscal 2022, but increased 60 basis points in the first nine 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 440 basis points and 410 basis points in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago.

◦ Continued increases in demand, as well as availability challenges in the global supply chain caused by COVID-19, including factory shutdowns in Vietnam, led to higher raw material and freight costs.

In response, we took pricing and surcharge actions which mostly offset rising costs in the third quarter and to a lesser extent, the first nine months of fiscal 2022, as they were increasingly realized in the second and third quarters of fiscal 2022.

◦ The expansion of our manufacturing capacity, in response to increased demand and sustained backlog, has led to higher production costs.

Further, continued labor challenges and the unavailability of component parts has resulted in temporary plant inefficiencies.

◦ Changes in our consolidated mix improved gross margin by 30 basis points and 50 basis points in the third quarter and first nine months of fiscal 2022, respectively.

The benefit was led by growth in our Retail segment and Joybird, both of which have higher gross margins relative to our Wholesale segment.

• Selling, general and administrative ("SG&A") expenses as a percentage of sales decreased 400 basis points and 470 basis points in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago.

◦ The third quarter and first nine months of fiscal 2021 included a $10.0 million and a $12.5 million pre-tax charge, respectively, resulting from the increase in the fair value of the Joybird contingent consideration liability, the absence of which in fiscal 2022 drove a comparative 210 basis point and 110 basis point decline in SG&A as a percentage of sales in the third quarter and first nine months of fiscal 2022, respectively.

◦ The first nine months of fiscal 2022 included a gain resulting from the sale of our Newton, Mississippi manufacturing facility while the first nine months of fiscal 2021 included expenses resulting from our business realignment plan.

These actions resulted in a comparative 40 basis point decrease in SG&A as a percentage of sales in the first nine months of fiscal 2022 compared with the same period of fiscal 2021.

◦ The remaining decrease in both the third quarter and first nine months of fiscal 2022 was due to higher sales volume relative to fixed costs.

We discuss each segment’s results in the following section.

Wholesale Segment

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except percentages) 1/22/2022 1/23/2021 % Change 1/22/2022 1/23/2021 % Change

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Operating margin 6.5% 10.2% 7.1% 10.4%

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.

The Wholesale segment’s sales increased $72.6 million, or 20.7%, and $338.6 million, or 36.9%, in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago.

More than half of the sales increase in the third quarter was driven by pricing and surcharge actions taken in response to rising manufacturing costs, with the remaining increase primarily attributable to higher volume.

Partially offsetting these increases, sales in our casegoods business were adversely impacted in the third quarter of fiscal 2022 by product unavailability due to temporary COVID-related shutdowns in Vietnam.

The sales increase in the first nine months was primarily a result of higher volume and to a lesser extent pricing and surcharge actions, as they were increasingly realized in the second and third quarters of fiscal 2022.

Higher sales volume in both the third quarter and first nine months of fiscal 2022 was driven by increased demand following the reopening of our stores after the COVID-related shutdowns at the beginning of fiscal 2021 and, since that time, we have continued to expand and scale our manufacturing capabilities to meet demand and work through our record backlog.

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.

• 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.

Operating margin decreased 370 basis points and 330 basis points in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago.

• Gross margin decreased 480 basis points and 500 basis points in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago.

◦ Higher demand and global supply chain challenges led to rising raw material and freight costs, higher tariff costs resulting from sourcing changes, and decreased availability of casegoods products due to temporary factory shutdowns in Vietnam.

These challenges resulted in an 850 basis point and 770 basis point decrease in gross margin in the third quarter and first nine months of fiscal 2022, respectively, of which 110 basis points and 40 basis points were driven by our casegoods business which was adversely impacted by the Vietnam shutdowns.

◦ In response to the higher raw material and freight costs, we took pricing and surcharge actions to mitigate their impact, resulting in a 680 basis point and 540 basis point benefit to gross margin in the third quarter and first nine months of fiscal 2022, respectively.

◦ Continued manufacturing capacity expansion, in response to significant increases in written order demand, along with temporary component part unavailability, and sustained labor challenges drove an increase in production costs resulting in a 260 basis point and 300 basis point decrease in gross margin in the third quarter and first nine months of fiscal 2022, respectively.

• SG&A expense as a percentage of sales decreased 110 basis points and 170 basis points in the third quarter and first nine 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.

◦ Additionally, the first nine months of fiscal 2022 included a gain resulting from the sale of our Newton, Mississippi manufacturing facility while the first nine months of fiscal 2021 included expenses resulting from our business realignment plan.

These actions resulted in a comparative 50 basis point decrease in the segment's SG&A as a percentage of sales in the first nine months of fiscal 2022.

Retail Segment

Quarter Ended Six Months Ended

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except percentages) 1/22/2022 1/23/2021 % Change 1/22/2022 1/23/2021 % Change

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Operating margin 12.2% 8.9% 12.0% 5.5%

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.

The Retail segment’s sales increased $31.1 million, or 18.7%, and $151.9 million, or 36.2%, in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago, led by a 16.4% and 32.9% increase in delivered same-store sales, respectively.

Since the reopening of our retail stores in the beginning of fiscal 2021, 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 2.7% over first nine months of fiscal 2022, compared with the same period a year ago.

While written same-store sales decreased 1.0% in the third quarter of fiscal 2022, compared with the same period a year ago, compared to the pre-pandemic third quarter of fiscal 2020, written same-store sales have increased at a compound annual growth rate of 3.6%.

Same-store delivered sales include the sales of all currently active stores which have been open and company-owned 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.

Operating margin increased 330 basis points and 650 basis points in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago.

• Gross margin decreased 120 basis points and 80 basis points in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago, primarily due to the timing difference between higher product costs resulting from the pricing and surcharge actions taken by our manufacturing business and pricing actions taken by the Retail business which are realized upon delivery.

• SG&A expense as a percentage of sales decreased 450 basis points and 730 basis points in the third quarter and first nine 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

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except percentages) 1/22/2022 1/23/2021 % Change 1/22/2022 1/23/2021 % Change

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Operating loss (12,254) (15,979) 23.3% (29,629) (31,804) 6.8 %

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%

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.

Sales increased $16.3 million and $54.5 million in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago, primarily led by Joybird sales which increased 55.8% to $44.5 million and 72.7% to $123.4 million, respectively.

Further, sales in the first nine months 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.

Written sales for Joybird were up 27.4% and 36.8% in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago, driven by significant investments in marketing.

Intercompany eliminations increased in the third quarter and first nine 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.

Our Corporate and Other operating loss decreased $3.7 million and $2.2 million in the third quarter and first nine months of fiscal 2022, respectively, compared with the same periods a year ago.

• There was a comparative benefit in the third quarter and first nine months of fiscal 2022, which was absent a $10.0 million and a $12.5 million pre-tax charge recognized in the same periods last year, respectively, resulting from the increase in the fair value of the Joybird contingent consideration liability based on financial projections at that time.

• Partially offsetting the item noted above, operating loss increased in the third quarter and first nine months of fiscal 2022 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.

• Increased investments in our technology infrastructure also contributed to the increased operating loss in the third quarter and first nine months of fiscal 2022.

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.

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.

Other income (expense), net was $1.5 million of expense in the third quarter of fiscal 2022 compared with $6.5 million of income in the third quarter of fiscal 2021.

The expense in fiscal 2022 was primarily due to unrealized losses on investments.

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

Other income (expense), net was $0.5 million of expense in the first nine months of fiscal 2022 compared with $8.0 million of income in the first nine months of fiscal 2021.

The expense in fiscal 2022 was primarily due to exchange rate losses.

The income in fiscal 2021 was primarily due to the payroll tax credits noted above along with unrealized gains on investments.

Our effective tax rate was 24.8% and 25.9% for the third quarter and nine months ended January 22, 2022, respectively, compared with 27.7% and 26.4% for the third quarter and nine months ended January 23, 2021, respectively.

The effective tax rate in the third quarter and nine months ended January 23, 2021, was impacted by a non-deductible fair value adjustment of the contingent consideration liability related to our Joybird acquisition.

Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes.

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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.

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.

We had cash, cash equivalents and restricted cash of $240.0 million at January 22, 2022, compared with $394.7 million at April 24, 2021.

In addition, we had investments to enhance our returns on cash of $29.8 million at January 22, 2022, compared with $32.5 million at April 24, 2021.

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

Six Months Ended

Nine Months Ended

(Unaudited, amounts in thousands) 1/22/2022 1/23/2021

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Operating Activities

During the first six months of fiscal 2022, net cash provided by operating activities was $15.4 million.

During the first nine months of fiscal 2022, net cash provided by operating activities was $45.2 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.

The increase in working capital was led by higher inventory to ensure input material availability to support increased sales demand and manufacturing capacity.

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.

During the first nine months of fiscal 2022, net cash used for investing activities was $77.0 million, primarily due to the following:

• Cash used for capital expenditures in the period was $58.6 million, compared with $26.7 million during the first nine months of fiscal 2021, which primarily related to plant upgrades to our upholstery manufacturing and distribution facilities in Neosho, Missouri, improvements to our retail stores, new upholstery manufacturing capacity in Mexico, and technology upgrades.

Spending on these items will continue into the fourth quarter, with full year fiscal 2022 capital expenditures expected to be in the range of $80 to $85 million.

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

• Cash used for acquisitions was $24.8 million, related to the acquisition of the Furnico manufacturing business and the Alabama, Chattanooga, Tennessee, and Long Island, New York retail businesses.

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.

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.

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 the satisfaction of customary conditions.

As of January 22, 2022, we have no borrowings outstanding under the Credit Facility.

As of January 22, 2022, 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.

The previous revolving credit facility was terminated on October 15, 2021, and is no longer in effect.

During the first nine months of fiscal 2022, net cash used for financing activities was $122.3 million, primarily due to the following:

• Our board of directors has authorized the repurchase of company stock and we spent $75.6 million in the first nine months of fiscal 2022 to repurchase 2.1 million shares.

On August 17, 2021, the board of directors approved a 6.5 million increase in its share repurchase authorization and as of January 22, 2022, 7.9 million shares remained available for repurchase pursuant to this authorization.

• Cash paid for holdback payments made on prior period acquisitions was $23.0 million, which primarily included contingent consideration and guaranteed payments related to the acquisition of Joybird and guaranteed payments related to the acquisition of the Seattle, Washington business.

• Cash paid to our shareholders in quarterly dividends was $20.6 million.

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.

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.

Due to changes in exchange rates, our cash, cash equivalents, and restricted cash decreased by $0.6 million from the end of fiscal year 2021 to the end of the third quarter of fiscal 2022.

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

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.

During the third 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.

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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.

There were no material changes to our critical accounting policies or estimates during the nine months ended January 22, 2022.

Recent Accounting Pronouncements

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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.

During the first nine 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.

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-Q

Item 2. Management’s Discussion and Analysis