What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-06-21 compared with 2021-06-15 · 156 added, 273 removed, 148 unchanged (74% of the section changed)

4 unchanged sentences

See "Cautionary Note Regarding Forward-Looking Statements” at the beginning of this report for a discussion of factors that may cause results to differ materially.

Note that our 2021, 2020 and 2019 fiscal years included 52 weeks.

Note that our 2022 fiscal year included 53 weeks, whereas 2021 and 2020 fiscal years included 52 weeks.

We are the leading global producer of reclining chairs and the second largest manufacturer/distributor of residential furniture in the United States .

2 unchanged sentences

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 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 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.

As of April 30, 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

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 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:

3 unchanged sentences

• The centerpiece of our retail distribution strategy is our network of 348 La-Z-Boy Furniture Galleries ® stores and 531 La-Z-Boy Comfort Studio ® locations, each dedicated to marketing our La-Z-Boy branded products.

We consider this dedicated space to be "proprietary." We own 159 of the La-Z-Boy Furniture Galleries ® stores.

The remainder of the La-Z-Boy Furniture Galleries ® stores, as well as all 561 La-Z-Boy Comfort Studio ® locations, are independently owned and operated.

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 161 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 531 La-Z-Boy Comfort Studio ® locations are independently owned and operated.

◦ In total, we have approximately 7.6 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 approximately half of Hammary’s sales originating through the La-Z-Boy Furniture Galleries ® store network.

• 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 637 outlets and approximately 1.9 million square feet of proprietary floor space.

◦ In total, our proprietary floor space includes approximately 12.5 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.

1 unchanged sentence

We plan to drive growth in the following ways:

• 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 segment as our proprietary distribution network expands.

• 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 leveraging the compelling La-Z-Boy comfort message, accelerating our omni-channel offering, and identifying additional consumer-based 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.

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 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.

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

• Our company-owned retail business.

We are 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.

• Our unique multi-channel distribution network.

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.

• 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 opportunistically 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.

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 providing additional small format stores in 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 acquisitions for growth.

In addition to our branded distribution channels, approximately 2,200 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.

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.

• Our on-trend product including stationary upholstered furniture featured in our Live Life Comfortably ® marketing campaign.

While we are known for our iconic recliners, they account for less than half of our sales in dollars, and we believe we have the potential to expand sales of our other products.

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.

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 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.

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.

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.

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 .

2 unchanged sentences

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.

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.

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 comprising our 159 company-owned La-Z-Boy Furniture Galleries ® stores.

The Retail segment primarily sells upholstered furniture, in addition to some casegoods and other accessories, to end consumers through these stores.

Our Retail segment consists of one operating segment comprised of our 161 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.

Joybird manufactures and sells upholstered furniture such as sofas, loveseats, chairs, ottomans, sleeper sofas and beds, and also imports and sells casegoods (wood) furniture, such as occasional tables and other accessories.

Joybird sells to end consumers primarily online through its website, www.joybird.com.

None of the operating segments included in Corporate & Other meet the requirements of reportable segments at this time.

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

10 unchanged sentences

Operating margin 8.8% 7.9%

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.

Consolidated sales in fiscal 2022 increased 36%, or $622.6 million, compared with the prior year.

We estimate the additional week in fiscal 2022 contributed $48.9 million to the increase based on the average weekly sales for the fourth quarter of fiscal 2022.

Since retail and manufacturing locations reopened after COVID-related shutdowns at the beginning of fiscal 2021, we have experienced strong 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 record sales in fiscal 2022.

Operating Margin

Operating margin, which is calculated as operating income as a percentage of sales, increased 90 basis points in fiscal 2022 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 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 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, 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.

• Gross margin decreased 380 basis points during fiscal 2022 compared with fiscal 2021.

◦ Continued increases in demand, as well as availability challenges in the global supply chain caused by the COVID-19 pandemic led to raw material and freight cost inflation.

In response, we took pricing and surcharge actions which partially offset rising costs and were increasingly realized in the second half of the fiscal year.

◦ 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 shortages of component parts resulted in temporary plant inefficiencies at various points throughout the fiscal year.

• Selling, general, and administrative ("SG&A") expense as a percentage of sales decreased 470 basis points during fiscal 2022 compared with fiscal 2021.

◦ Changes in the fair value of the Joybird contingent consideration liability resulted in a comparative 100 basis point decrease in SG&A as a percentage of sales.

During fiscal 2021 we recognized a $14.1 million pre-tax charge resulting from the increase in the fair value of the Joybird contingent consideration liability based on improved financial projections at that time.

During fiscal 2022 we recognized a $3.3 million pre-tax gain to reduce the fair value of the Joybird contingent consideration liability based on our most recent projections for the fiscal 2023 performance period.

◦ During the fourth quarter of fiscal 2022, we recognized a $10.7 million gain on sale-leaseback transactions for the buildings and related fixed assets of three retail stores, resulting in a 50 basis point decrease in SG&A as a percentage of sales.

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

These actions resulted in a comparative 30 basis point decrease in SG&A as a percentage of sales in fiscal 2022.

◦ The remaining decrease in SG&A as a percentage of sales in fiscal 2022 was due to higher sales volume relative to fixed costs.

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

5 unchanged sentences

Operating margin 7.6% 10.3%

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.

The Wholesale segment's sales increased 36%, or $467.5 million, in fiscal 2022 compared with fiscal 2021.

Approximately half of the sales increase during fiscal 2022 was the result of higher volume driven by increased demand following the reopening of our stores after COVID-related shutdowns at the beginning of fiscal 2021.

Since that time, we have continued to expand and scale our manufacturing capabilities to meet demand and work through our record backlog resulting in significant sales growth.

Further, we estimate the additional week in fiscal 2022 compared with fiscal 2021 contributed a $36.6 million increase in sales, based on the average weekly sales for the fourth quarter of fiscal 2022.

The remaining increase in sales was primarily attributable to pricing and surcharge actions taken in response to rising manufacturing and freight costs, which were increasingly realized in the second half of fiscal 2022.

Operating Margin

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

The Wholesale segment's operating margin decreased 270 basis points in fiscal 2022 compared with fiscal 2021.

• Gross margin decreased 400 basis points during fiscal 2022 compared with fiscal 2021.

◦ 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.

◦ Higher demand and global supply chain challenges led to rising raw material and freight costs, resulting in a 720 basis point decrease in gross margin.

◦ Pricing and surcharge actions taken to mitigate rising raw material and freight costs were increasingly realized over the course of fiscal 2022 as our backlog delayed the full benefit of these actions, resulting in a 550 basis point increase in gross margin.

◦ Continued manufacturing 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 240 basis point decrease in gross margin.

• SG&A expense as a percentage of sales decreased 130 basis points during fiscal 2022 compared with fiscal 2021.

◦ 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.

◦ The decrease in SG&A as a percentage of sales in fiscal 2022 was primarily due to higher sales volume relative to both fixed costs and marketing spend.

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

These actions resulted in a comparative 30 basis point decrease in SG&A as a percentage of sales in fiscal 2022.

Retail Segment

4 unchanged sentences

Operating margin 13.6% 7.6%

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.

The Retail segment's sales increased $191.5 million, or 31%, in fiscal 2022 compared with fiscal 2021 led by a 28% increase in delivered same-stores sales.

Additionally, the Retail segment benefited from a $31.9 million increase in sales related to our fiscal 2022 retail store acquisitions and the full-year impact of our fiscal 2021 retail store acquisition (refer to Note 2, Acquisitions for further information).

Further, we estimate the additional week in fiscal 2022 compared with fiscal 2021 contributed a $16.6 million increase in sales based on the average weekly sales for the fourth quarter of fiscal 2022.

Since the reopening of our retail stores in the beginning of fiscal 2021, demand for products in the home furnishings category has increased and we have experienced strong sales trends.

While written same-store sales in fiscal 2022 were relatively flat compared with fiscal 2021, compared to pre-pandemic fiscal 2020, written same-store sales have increased at a compound annual growth rate of 15%.

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

Operating Margin

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.

The Retail segment's operating margin increased 600 basis points in fiscal 2022 compared with the prior year.

• Gross margin decreased 90 basis points during fiscal 2022 compared with fiscal 2021, 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 690 basis points during fiscal 2022 compared with fiscal 2021, primarily due to higher delivered sales relative to selling expenses, marketing spend, and fixed costs, primarily occupancy expenses.

Additionally, during the fourth quarter of fiscal 2022, we recognized a $10.7 million gain on sale-leaseback transactions for the buildings and related fixed assets of three retail stores, resulting in a 130 basis point decrease in SG&A expense as a percentage of sales.

Corporate and Other

4 unchanged sentences

Operating loss (36,803) (44,300) (16.9) %

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.

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.

Sales increased $68.6 million in fiscal 2022 compared with fiscal 2021, primarily due to a $67.2 million, or 62% increase from Joybird, which contributed $176.4 million in sales in fiscal 2022.

Of that increase, we estimate $3.8 million was attributable to the additional week in fiscal 2022 compared with fiscal 2021, based on the average weekly sales for the fourth quarter of fiscal 2022.

The additional growth in Joybird sales was primarily driven by increased demand for products in the home furnishings category, investments in marketing and website enhancements resulting in higher online conversion, increased pricing and favorable product mix, and the addition of retail store locations.

Further, sales in 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% in fiscal 2022 compared with fiscal 2021, driven by growth of the brand behind significant investments in marketing.

Intercompany eliminations increased in fiscal 2022 compared with fiscal 2021 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 $7.5 million lower in fiscal 2022 compared with fiscal 2021.

• 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

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)

Wholesale segment $ 39,003 $ 30,245

Retail segment 23,551 14,984

Corporate and Other (12,496) (31,803)

Consolidated operating income $ 50,058 $ 13,426

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.

• Changes in the fair value of the Joybird contingent consideration liability resulted in a comparative $17.4 million decrease in operating loss.

During fiscal 2021, we recognized a $14.1 million pre-tax charge resulting from the increase in the fair value of the Joybird contingent consideration liability based on financial projections at that time.

During fiscal 2022, we recognized a $3.3 million pre-tax gain to reduce the fair value of the Joybird contingent consideration liability based on our most recent projections for the fiscal 2023 performance period.

• The items above were partially offset by decreased operating profits at Joybird as a result of 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 further offset the comparative gain noted above.

Non-Operating Income (Expense)

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.

Interest expense was $0.5 million lower and interest income was $0.2 million higher in fiscal 2022 compared with fiscal 2021.

The decrease in interest expense was primarily due to lower rates associated with our new credit facility entered into during the second quarter of fiscal 2022.

Refer to Note 10, Debt, to our consolidated financial statements for additional information.

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.

Other income (expense), net was $1.7 million of expense in fiscal 2022 compared with $9.5 million of income in fiscal 2021.

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

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 25.9% for fiscal 2022 and 26.3% for fiscal 2021.

Impacting our effective tax rate for fiscal 2020 was a net tax expense of $4.0 million primarily from the tax effect of a non-deductible goodwill impairment charge related to the Joybird reporting unit and tax expense of $1.3 million from deferred tax attributable to undistributed foreign earnings no longer permanently reinvested.

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

Impacting our effective tax rate for fiscal 2022 was a net tax benefit of $0.7 million from the tax effect of the fair value adjustment of contingent consideration liability related to the Joybird acquisition.

Liquidity and Capital Resources

Our sources of liquidity include cash and 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 believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, invest in capital expenditures, and fulfill other cash requirements for day-to-day operations, including fiscal 2023 contractual obligations.

We had cash, cash equivalents and restricted cash of $248.9 million at April 30, 2022, compared with $394.7 million at April 24, 2021.

Included in our cash, cash equivalents and restricted cash at April 30, 2022, is $54.7 million held by foreign subsidiaries, the majority of which we have determined to be permanently reinvested.

In addition, we had investments to enhance our returns on cash of $27.2 million at April 30, 2022, compared with $32.5 million at April 24, 2021.

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, net of customer deposits.

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

The credit agreement includes affirmative and negative covenants that apply under certain circumstances, including a fixed-charge coverage ratio requirement that applies when excess availability under the credit line is less than certain thresholds.

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.

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.

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 $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.

• 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 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:

4 unchanged sentences

Net cash provided by operating activities (1)

$ 79,004 $ 309,917

Net cash used for investing activities (78,371) (40,703)

Net cash provided by (used for) financing activities (141,054) 2,558

Net cash used for financing activities (144,561) (141,054)

Exchange rate changes (1,919) 3,015

Change in cash, cash equivalents and restricted cash $ (145,847) $ 131,175

(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 fiscal 2022, net cash provided by operating activities was $79.0 million.

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.

Our cash provided by operating activities was primarily attributable to net income, adjusted for non-cash items, 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.

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 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.

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, adjusted for non-cash items, generated during the period.

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.

This was partially offset by $11.3 million in proceeds from the disposal of assets primarily due to the sale of the Redlands upholstery facility in the third quarter of fiscal 2020.

Our capital expenditures during the year primarily related to spending on manufacturing machinery and equipment, upgrades to our Dayton, Tennessee upholstered furniture manufacturing facility and improvements to select retail stores.

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 2022, net cash used for investing activities was $78.4 million, primarily due to the following:

• Cash used for capital expenditures in the period was $76.6 million, 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.

We expect capital expenditures to be in the range of $85 to 95 million for fiscal 2023, primarily related to improvements and expansion of our retail and Joybird stores, the completion of plant upgrades to our upholstery manufacturing and distribution facilities in Neosho, Missouri, and technology upgrades.

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

• Cash used for acquisitions was $26.3 million, related to the acquisition of the Furnico manufacturing business in the United Kingdom and the Alabama, Chattanooga, Tennessee, and Long Island, New York retail businesses.

Refer to Note 2, Acquisitions, for additional information.

• Cash provided from disposals of assets was $22.6 million, primarily related to sale-leaseback transactions for the buildings and related fixed assets of three retail stores.

During fiscal 2021, net cash used for investing activities was $40.7 million, primarily due to the following:

• Cash used for capital expenditures in the period was $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.

• Cash used for acquisitions was $2.0 million, related to the acquisition of the Seattle, Washington retail business.

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.

On October 15, 2021, we entered into a new five-year $200 million unsecured revolving credit facility (the “Credit Facility”).

Borrowings under the Credit Facility may be used by the Company for general corporate purposes.

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 the satisfaction of customary conditions.

As of April 30, 2022, 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 certain assets.

As of April 30, 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 Credit Facility replaces our previous $150 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.

During fiscal 2022, net cash used for financing activities was $144.6 million, primarily due to the following:

• Our board of directors has authorized the repurchase of Company stock and we spent $90.6 million during fiscal 2022 to repurchase 2.5 million shares.

• 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 retail business.

• Cash paid to our shareholders in quarterly dividends was $27.7 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.

During fiscal 2021, net cash used for financing activities was $141.1 million, primarily due to the following:

• Cash payments of $75.1 million on our previously held revolving credit facility.

• Cash paid to repurchase 1.1 million shares of Company stock was $44.2 million.

• Cash paid to our shareholders in quarterly dividends was $16.5 million.

• Cash paid in dividends to our joint venture minority partners, resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested, was $8.5 million.

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.

Due to changes in exchange rates, our cash, cash equivalents, and restricted cash decreased by $1.9 million from the end of fiscal year 2021 to the end of fiscal year 2022.

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) Total Less than

Years More than

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

Contractual Obligations

Lease Obligations.

We lease real estate for retail stores, distribution centers, warehouses, plants, showrooms and office space and also have equipment leases for tractors/trailers, IT and office equipment, and vehicles.

As of April 30, 2022, we had operating and finance lease payment obligations of $477.1 million and $0.5 million, respectively, with $86.6 million and $0.1 million, payable within 12 months, respectively.

Refer to Note 6, Leases, to our consolidated financial statements for additional information.

Purchase Obligations.

212,630 212,630 — — —

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

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

(1) Related to open purchase orders, primarily with foreign and domestic casegoods, leather and fabric suppliers, which are generally cancellable if production has not begun.

We had purchase obligations of $267.9 million, all payable within 12 months, related to open purchase orders, primarily with foreign and domestic casegoods, leather, and fabric suppliers, which are generally cancellable if production has not begun.

Acquisition Payment Obligations.

Consideration for prior acquisitions may include future guaranteed payments and payments contingent on future performance.

As of April 30, 2022, we had future guaranteed payments and contingent payments related to our Joybird acquisition of $10.8 million with $5.0 million payable within 12 months.

Our consolidated balance sheet as April 30, 2022 reflected a $1.0 million net liability for uncertain income tax positions.

2 unchanged sentences

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.

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

5 unchanged sentences

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.

2 unchanged sentences

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.

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.

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.

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

The reporting unit for goodwill arising from retail store acquisitions is our Retail operating segment.

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.

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

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.

1 unchanged sentence

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 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.

1 unchanged sentence

Refer to Note 7, Goodwill and Other Intangible Assets, for further information regarding our fiscal 2022 impairment testing.

Amortizable Intangible Assets

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 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

5 unchanged sentences

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.

10 unchanged sentences

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

The Monte Carlo model incorporates more complex variables than closed-form models such as the Black-Scholes option valuation model used for option grants.

The Monte Carlo model incorporates more complex variables than closed-form models such as the Black-

Scholes option valuation model used for option grants.

The Monte Carlo valuation model simulates a distribution of stock prices to yield an expected distribution of stock prices over the remaining performance period.

4 unchanged sentences

Recent Accounting Pronouncements

See Note 1, Accounting Policies, to the condensed consolidated financial statements included in this Form 10-K for a discussion of recently adopted accounting standards and other new accounting standards.

See Note 1, Accounting Policies, to our consolidated financial statements included in this Form 10-K for a discussion of recently adopted accounting standards and other new accounting standards.

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