What changed in this filing

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Item 1. Business

2023-06-20 compared with 2022-06-21 · 89 added, 94 removed, 154 unchanged (54% of the section changed)

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As of April 29, 2023, 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

• Five major manufacturing locations and 12 distribution centers in the United States and four facilities in Mexico to support our speed-to-market and customization strategy

• A logistics company that distributes a portion of our products in the United States

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• 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

During the third quarter of fiscal 2023, we made the decision to close our manufacturing facility in Torreón, Mexico as part of our initiative to drive improved efficiencies through optimized staffing levels within our plants.

Torreón was the last facility to begin operating as part of our broader Mexico manufacturing expansion in fiscal 2021 and 2022 to meet pandemic-related upholstery demand and accounted for approximately 3% of our La-Z-Boy branded production.

As a result of this action, charges were recorded within the Wholesale segment in the third and fourth quarters of fiscal 2023 totaling $9.2 million in selling, general, and administrative expense for the impairment of various assets, primarily long-lived assets, and $1.6 million in cost of sales, primarily related to severance.

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

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◦ In total, our proprietary floor space includes approximately 12.1 million square feet worldwide.

• 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.

The foundation of our strategic initiatives is driving profitable sales growth in all areas of our business.

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

Principal Products and Industry Segments

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

Our Wholesale segment manufactures and imports upholstered and casegoods (wood) furniture and 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.

Our Wholesale segment manufactures and imports upholstered and casegoods (wood) furniture and sells directly to La-Z-Boy Furniture Galleries ® stores, operators of La-Z-Boy Comfort Studio ® locations, branded space locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.

Our Retail segment primarily sells upholstered furniture, in addition to some casegoods and other accessories, to end consumers through our company-owned La-Z-Boy Furniture Galleries ® stores.

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to our consolidated financial statements and Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section, both of which are included in this report.

COVID-19 Impact

We have been and continue to be impacted by the COVID-19 pandemic.

Specifically, beginning in the fourth quarter of fiscal 2020, the temporary closure of our manufacturing facilities and company-owned stores due to state and local restrictions 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, 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 strong written orders 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 scale production capacity.

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

plants when prudent, and temporarily reactivating a portion of our Newton, Mississippi upholstery manufacturing facility.

In addition, we opened a leased upholstery assembly plant in San Luis Rio Colorado, Mexico and a leased sewing facility in Parras, Mexico during the third quarter of fiscal 2021 and the first quarter of fiscal 2022, respectively.

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

Additionally, in the third quarter of fiscal 2021 we recognized employee retention credits of $5.2 million in non-operating income for wages and healthcare costs paid to employees during suspension of operations due to government orders which qualify under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

No additional credits were taken during fiscal 2022.

We continue to actively manage the impact of the COVID-19 crisis as we face continued uncertainty regarding the impact COVID-19 will have on our financial operations in the near and long term.

We also continue to actively manage our global supply chain and manufacturing operations, which have been adversely impacted with respect to availability and pricing of raw materials and freight based on uncontrollable factors as well as COVID-19 related constraints on our manufacturing capacity as we continue to prioritize the health and safety of our employees.

The need for, or timing of, any future actions in response to COVID-19 is largely dependent on the mitigation of the spread of the virus along with the adoption and continued effectiveness of vaccines, status of government orders, directives and guidelines, recovery of the business environment, global supply chain conditions, economic conditions, and consumer demand for our products, all of which are highly uncertain.

Raw Materials and Parts

The principal raw materials and parts used for manufacturing that are purchased are cover (primarily fabrics and leather), polyester batting and polyurethane foam for cushioning and padding, lumber and plywood for frames, steel for motion mechanisms, electrical components for power units and various other metal components for fabrication of product.

We purchase most of our polyurethane foam from three suppliers, which have several facilities across the United States or Mexico that deliver to our plants.

We purchase most of our polyurethane foam from two suppliers, which have several facilities across the United States that deliver to our plants.

We purchase cover from a variety of sources, but we rely on a limited number of major suppliers.

We purchase more than half of our cover in a raw state (fabric rolls or leather hides) from suppliers in China, then cut and sew it

into cover in our cut and sew facilities in Mexico.

We purchase the remainder of our cut and sewn leather and fabric kits from five main suppliers primarily from China as well as Vietnam and Haiti.

We purchase more than half of our cover in a raw state (fabric rolls or leather hides) primarily from suppliers in China, then cut and sew it into cover in our cut and sew facilities in Mexico.

We purchase the remainder of our cut and sewn leather and fabric kits from five main suppliers primarily from China as well as Vietnam.

We use these suppliers primarily for their product design capabilities and to balance our mix of in-sourced and out-sourced production.

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We manage our Asian supply chain through our global trading company in Hong Kong, which works to identify efficiencies and savings opportunities, while verifying La-Z-Boy quality standards are being adhered to and managing the relationships with our Asian suppliers.

During fiscal 2022, the prices of materials we use in our upholstery manufacturing process increased, driven by supply chain challenges due to COVID-19, higher demand for raw materials in manufacturing sectors and the home furnishings industry due to an economic sector rotation, and inflationary cost pressure.

As we begin fiscal 2023, we expect raw material prices to remain at historically high levels in many categories due to price inflation in our core materials and global supply chain complexities.

COVID-19 related issues will continue to introduce uncertainty into many markets, especially with respect to freight, tariffs and labor availability.

To the extent that we experience incremental costs in any of these areas, we may increase our selling prices or assess material surcharges to offset the impact.

During fiscal 2022 and the first half of fiscal 2023, the prices of materials we use in our upholstery manufacturing process increased, driven by supply chain challenges due to COVID-19, higher demand for raw materials in manufacturing sectors and the home furnishings industry due to an economic sector rotation, and inflationary cost pressure.

During the second half of fiscal 2023, raw material prices began to decrease relative to the historic highs experienced in the prior year, but are still well above pre-pandemic levels.

As we begin fiscal 2024, we anticipate that prices will remain relatively consistent with those seen at the end of fiscal 2023, with potential increases due to economic volatility and price inflation in our core materials.

To the extent that we again experience incremental costs in any of these areas, as we did in fiscal 2023, we may increase our selling prices or assess material surcharges to offset the impact.

However, increases in selling prices, or surcharges, may not fully mitigate the impact of raw material cost increases, which could adversely impact operating profits.

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Imported finished goods represented 7% and 6% of our consolidated sales in fiscal 2023 and 2022, respectively.

We import all of the casegoods (wood) furniture that we sell primarily to remain competitive for these products.

In fiscal 2022, we purchased 63% of this imported product from four suppliers based in Asia.

In fiscal 2023, we purchased 74% of this imported product from five suppliers based in Asia.

We use these suppliers primarily to leverage our buying power, to control quality and product flow, and because their capabilities align with our product design needs.

If any of these suppliers experience financial or other difficulties, including sustained negative effects of the COVID-19 pandemic or supply chain challenges, we could experience disruptions in our product flow until we obtain alternate suppliers, which could be lengthy due to the longer lead time required for sourced wood furniture from Asian manufacturers.

The prices we paid for these imported products, including associated transportation costs, increased in fiscal 2022 compared with fiscal 2021, primarily due to constrained supply resulting from a combination of COVID-19 lockdowns, primarily in Vietnam, and increased demand across the industry.

Additionally, shipping container availability was constrained throughout fiscal 2022, resulting from an imbalance in container supply driven by COVID-19 disruptions and elevated demand.

Based on continued inflationary pressures and heightened demand for shipping capacity, in fiscal 2023 we anticipate overall product and freight costs associated with our finished goods imports to increase.

If any of these suppliers experience financial or other difficulties, we could experience disruptions in our product flow until we obtain

alternate suppliers, which could be lengthy due to the longer lead time required for sourced wood furniture from Asian manufacturers.

The prices we paid for these imported products, including associated transportation costs, decreased throughout 2023 compared with fiscal 2022 when costs increased drastically due to the constrained supply chain along with the lack of shipping container availability.

In fiscal 2024, we anticipate our product costs will stabilize.

Seasonal Business

We believe that the demand for furniture generally reflects sensitivity to overall economic conditions, including consumer confidence, housing market conditions and unemployment rates.

For our wholesale businesses, the fourth quarter has historically had the highest volume of delivered sales relative to other quarters.

For our retail and e-commerce businesses, which includes our company-owned retail stores and Joybird, the third quarter typically has the highest volume of delivered sales relative to other quarters.

Our business has historically displayed seasonal patterns driven by consumer behavior with demand highest in the winter months as discretionary spend tends to shift toward travel and leisure activities during the summer months.

For our wholesale businesses, our fiscal fourth quarter has historically had the highest volume of delivered sales relative to other quarters.

For our retail businesses, which includes our company-owned retail stores, our fiscal third quarter typically has the highest volume of delivered sales relative to other quarters.

In a typical year, we schedule production to maintain consistent manufacturing activity throughout the year whenever possible.

During the summer months, the furniture industry typically experiences weaker demand, and as such we typically shut down our domestic plants for one week each fiscal year to perform routine maintenance on our equipment.

During the summer months, the furniture industry generally experiences weaker demand, and as such we typically shut down our domestic plants for one week each fiscal year to perform routine maintenance on our equipment.

Accordingly, for our wholesale business, the first quarter is usually the Company's weakest quarter in terms of sales and earnings.

Also driven by the seasonal slowdown in the summer, each of our retail business typically experiences its lowest sales in the first quarter.

During the last two fiscal years, our sales volume and production schedule did not follow typical trends due to the impact of COVID-19.

Since our retail locations and manufacturing facilities reopened by the end of the first quarter of fiscal 2021, we have experienced heightened demand and in response, we took several actions to increase our production capacity throughout the last two fiscal years.

As a result of these actions, coupled with the additional week in the fourth quarter of fiscal 2022, our wholesale and retail businesses both experienced their largest sales volume in the fourth quarter of fiscal 2022.

Further, due to our record backlog as of the end of fiscal 2022, we also do not anticipate typical seasonal trends until the second half of fiscal 2023.

We do not expect that this impact is reflective of any long term seasonal trends in the furniture industry or is an indicator that seasonal trends are permanently changing for our wholesale or retail businesses.

Also driven by the seasonal slowdown in the summer, each of our retail businesses typically experience their lowest sales in our fiscal first quarter.

During the last three fiscal years, our sales volume and production schedule did not follow typical trends due to the impact of COVID-19.

As a result of the significant backlog built in prior years driven by heightened demand during the COVID-19 pandemic, in fiscal 2023, our wholesale and retail businesses both experienced their largest sales volume in the second quarter of fiscal 2023.

We anticipate that typical seasonal trends in the furniture industry will return to normal in fiscal 2024.

Economic Cycle and Purchasing Cycle

Our sales are impacted by the overall growth of the furniture industry, which is primarily influenced by consumer discretionary spending and existing and new housing activity.

In addition, consumer confidence, employment rates, international trade policies, and other factors could affect demand.

As a result of COVID-19, beginning in the second quarter of fiscal 2021, we experienced heightened demand, as more discretionary spending was allocated to the home furnishings industry which carried forward through much of fiscal 2022.

However, as various COVID-related restrictions were lifted near the end of fiscal 2022, and given the current geopolitical climate and rising inflation, we are unable to predict how long this demand will last or to what extent these factors may impact the economic and purchasing cycle for our products in the short and long term.

Our sales are impacted by the overall growth of the furniture industry, which is primarily influenced by economic growth, existing and new housing activity, and consumer discretionary spending.

In addition, consumer confidence, employment rates, inflation and interest rates, consumer savings levels, international trade policies, and other factors could affect demand.

During fiscal 2021 and the beginning of fiscal 2022, we experienced heightened demand as more discretionary spending was allocated to the home furnishings industry due to the impact of COVID-19.

However, during fiscal 2023, demand trends have returned to pre-pandemic patterns and therefore, in fiscal 2024, we anticipate furniture demand and purchasing cycles to respond to macroeconomic conditions as they historically have.

Upholstered furniture has a shorter life cycle than casegoods furniture because upholstered furniture is typically more fashion and design-oriented and is often purchased one or two pieces at a time.

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For our upholstery business within our Wholesale segment, we maintain raw materials and work-in-process inventory at our manufacturing locations.

Finished goods inventory is maintained at our nine regional distribution centers as well as our manufacturing locations.

Our regional distribution centers allow us to streamline the warehousing and distribution processes for our La-Z-Boy Furniture Galleries ® store network, including both company-owned stores and independently-owned stores.

Our regional distribution centers also allow us to reduce the number of individual warehouses needed to supply our retail outlets and help us reduce inventory levels at our manufacturing and retail locations.

Finished goods inventory is maintained at our 12 distribution centers as well as our manufacturing locations.

Our distribution centers allow us to streamline the warehousing and distribution processes for our La-Z-Boy Furniture Galleries ® store network, including both company-owned stores and independently-owned stores.

Our distribution centers also allow us to reduce the number of individual warehouses needed to supply our retail outlets and help us reduce inventory levels at our manufacturing and retail locations.

For our casegoods business within our Wholesale segment, we import wood furniture from Asian vendors, resulting in long lead times on these products.

To address these long lead times and meet our customers' delivery requirements, we typically maintain higher levels of finished goods inventory in our domestic warehouses, as a percentage of sales, of our casegoods products than our upholstery products.

To address these long lead times and meet our customers' delivery requirements, we typically maintain higher levels of finished goods inventory in our warehouses, as a percentage of sales, of our casegoods products than our upholstery products.

Our company-owned La-Z-Boy Furniture Galleries ® stores have finished goods inventory at the stores for display purposes.

Our Joybird business maintains raw materials and work-in-process inventory at its manufacturing location.

Joybird finished goods inventory is maintained at our regional distribution centers, at its manufacturing and warehouse locations, or in-transit to the end consumer.

Our inventory increased $77.1 million as of year end fiscal 2022 compared with year end fiscal 2021 primarily to support increased sales demand and manufacturing capacity and to reduce the impact associated with volatility in raw material availability, as well as due to the higher cost of materials and other input costs.

Joybird finished goods inventory is maintained at our distribution centers, at its manufacturing and warehouse locations, or in-transit to the end consumer.

Our inventory decreased $26.9 million as of year end fiscal 2023 compared with year end fiscal 2022 primarily due to higher inventory levels at the end of fiscal 2022 to support increased sales demand and manufacturing capacity and to reduce the impact associated with volatility in raw material availability.

Additionally, inventory balances at the end of fiscal 2023 were lower as we have worked down our backlog toward pre-pandemic levels and aligned production with incoming order trends.

We actively manage our inventory levels on an ongoing basis to ensure they are appropriate relative to our sales volume, while maintaining our focus on service to our customers.

Accounts Receivable:

Our accounts receivable increased $44.4 million as of year end fiscal 2022 compared with year end fiscal 2021.

The increase in accounts receivable was primarily due to higher fourth quarter sales in fiscal 2022 compared with the same period a year ago driven by pricing and surcharge actions taken in response to rising manufacturing costs and higher overall volume.

Additionally, our allowance for receivable credit losses was lower at the end of fiscal 2022 compared with the end of fiscal 2021 reflecting strong collection trends.

Our accounts receivable decreased $58.2 million as of year end fiscal 2023 compared with year end fiscal 2022.

The decrease in accounts receivable was primarily due to lower fourth quarter sales in fiscal 2023 compared with the same period a year ago as the prior year benefited from sales generated from the backlog built up in prior periods combined with the realization of pricing and surcharge actions taken in response to rising manufacturing costs.

Additionally, our allowance for receivable credit losses was $1.4 million higher at the end of fiscal 2023 compared with the end of fiscal 2022 reflecting uncertainty in the economic outlook.

We monitor our customers' accounts, limit our credit exposure to certain independent dealers and strive to decrease our days' sales outstanding where possible.

Our days' sales outstanding is a measure of the time needed to collect outstanding accounts receivable once we have completed a sale and was approximately 30 days or less in both fiscal 2022 and fiscal 2021 on a consolidated basis.

Accounts Payable:

Our accounts payable increased $9.9 million as of year end fiscal 2022 compared with year end fiscal 2021, primarily due to higher inventory purchases as we continue to scale production to meet increased demand.

Our accounts payable increased $3.4 million as of year end fiscal 2023 compared with year end fiscal 2022, primarily due to higher marketing costs during the fourth quarter of fiscal 2023 compared with the fourth quarter of fiscal 2022.

Customer Deposits:

We collect a deposit from our customers at the time a customer order is placed in one of our company-owned retail stores or through our websites, www.la-z-boy.com and www.joybird.com.

Customer deposits increased $2.5 million as of fiscal year end 2022 compared with fiscal year end 2021, primarily due to higher written Retail and Joybird sales volume throughout the year.

Customer deposits decreased $77.5 million as of fiscal year end 2023 compared with fiscal year end 2022, as we worked down our backlog toward pre-pandemic levels.

Our wholesale customers are furniture retailers.

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Sales in our Wholesale segment are primarily to third-party furniture retailers, but we also sell directly to end consumers through our company-owned La-Z-Boy Furniture Galleries ® stores that make up our Retail segment and through our websites, www.la-z-boy.com and www.joybird.com.

We have formal agreements with many furniture retailers for them to display and merchandise products from one or more of our operating units and sell them to consumers in dedicated retail space, either in stand-alone stores or dedicated proprietary galleries or studios within their stores.

We consider this dedicated space to be "proprietary." For our Wholesale segment, our fiscal 2022 customer mix based on sales was approximately 56% proprietary, 11% major dealers, such as Berkshire Hathaway, Sofa Carpet Specialist (SCS), Slumberland Furniture and Mathis Brothers, and 33% other independent retailers.

We consider this dedicated space to be "proprietary." For our Wholesale segment, our fiscal 2023 customer mix based on sales was approximately 60% proprietary, 10% major dealers (large, regional retailers), and 30% other independent retailers.

The success of our product distribution model relies heavily on having retail floor space that is dedicated to displaying and marketing our products.

The 349-store La-Z-Boy Furniture Galleries ® network is central to this approach.

In addition, we sell product through proprietary space within other retail furniture stores, primarily La-Z-Boy Comfort Studio ® locations, England Custom Comfort Center locations, Kincaid Shoppes, and other international locations.

Additionally, our Joybird business, which sells product primarily online to end consumers through its website, www.joybird.com, also has a limited amount of proprietary retail showroom floor space in small format stores in key urban markets.

In addition, we sell product through proprietary space within other retail furniture stores, primarily La-Z-Boy Comfort Studio ® locations, branded space locations, England Custom Comfort Center locations, Kincaid Shoppes, and other international locations.

Additionally, our Joybird business, which sells product primarily online to end consumers through its website, www.joybird.com, also has a limited amount of retail showroom floor space in small-format stores in key urban markets.

Maintaining, updating, and, when appropriate, expanding our proprietary distribution network is a key part of our overall sales and marketing strategy.

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We continue to maintain and update our current stores to improve the quality of the network.

The La-Z-Boy Furniture Galleries ® store network plans to open, relocate or remodel 40 to 45 stores during fiscal 2023, all of which will feature our latest store designs.

We select independent dealers for our proprietary La-Z-Boy Furniture Galleries ® store network based on factors such as their management and financial qualifications and the potential for distribution in specific geographical areas.

This proprietary distribution benefits La-Z-Boy, our dealers and our consumers.

It enables La-Z-Boy to concentrate our marketing with sales personnel dedicated to our entire product line, and only that line and approved accessories.

It also allows dealers that join this proprietary group to take advantage of best practices, with which other proprietary dealers have succeeded, and we facilitate forums for these dealers to share them.

The La-Z-Boy Furniture Galleries ® store network plans to open 7 to 9 stores and relocate or remodel 20 to 25 stores during fiscal 2024, all of which will feature our latest store designs.

Additionally, during fiscal 2024 we plan to open or update approximately 100 La-Z-Boy Comfort Studio ® locations as well as 40 branded space locations.

Independent dealers for our proprietary La-Z-Boy Furniture Galleries ® store network were selected based on factors such as their management and financial qualifications and the potential for distribution in specific geographical areas.

This proprietary distribution enables us to concentrate our marketing to a dedicated product line across the entire network benefitting La-Z-Boy, these dealers, and our consumers.

It also allows dealers in this proprietary group to take advantage of best practices, with which other proprietary dealers have succeeded, and we facilitate forums for these dealers to share them.

These La-Z-Boy Furniture Galleries ® stores provide our consumers a full-service shopping experience with a large variety of products, knowledgeable sales associates, and design service consultants.

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Our wholesale backlog was $223.1 million as of April 29, 2023, compared with $697.2 million as of April 30, 2022.

The increase in our backlog was primarily due to pricing actions taken to mitigate the impact of rising raw material and freight costs, along with a shift in product mix, as higher production capacity kept pace with written order demand during fiscal 2022.

The decrease in fiscal 2023 was the result of delivering on the backlog built in prior periods, continued production and supply chain efficiencies, and a slow-down in demand relative to the peak experienced during the COVID-19 pandemic.

As of the end of fiscal 2023, we believe that our backlog volume and lead times are returning to pre-pandemic levels and we anticipate that they will stabilize in fiscal 2024.

Competitive Conditions

We are the second largest manufacturer/distributor of residential (living and family room, bedroom, and dining room) furniture in the United States, as measured by annual sales volume.

Alternative distribution channels have increasingly affected our retail markets.

Direct-to-consumer brands, such as Article and Burrow, bypass brick and mortar retailers entirely or in some cases have developed a product that can be shipped more easily than traditional upholstered furniture, thus increasing competition for our products.

The increased ability of consumers to purchase furniture through various furniture manufacturers' and digital-only retailers' internet websites, including companies such as Amazon, Hayneedle, QVC, and Wayfair, has also increased competition in the industry.

Although digital retailers operate with lower overhead costs than a brick-and-mortar retailer, customer acquisition costs and advertising spend is typically much higher.

Department stores and big box retailers with an online presence also offer products that compete with some of our product lines.

The home furnishings industry competes primarily on the basis of product styling and quality, customer service (product availability and delivery), price, and location.

We compete primarily by emphasizing our brand and the comfort, quality, styling and value of our products.

The home furnishings industry competes primarily on the basis of product styling and quality, comfort, customer service (product availability and delivery), price, and location.

We compete by emphasizing our brand and the comfort, quality, styling, customization, value of our products, and our available design services.

In addition, we remain committed to innovation while striving to provide outstanding customer service, exceptional dealer support, and efficient on-time delivery.

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We compete in the mid to upper-mid price point, and a shift in consumer taste and trends to lower-priced products could negatively affect our competitive position.

In the Wholesale segment, our largest competitors are Ashley, Bassett, Bernhardt, Best Chair, Flexsteel, Hooker Furniture, Klaussner, Kuka, Lacquer Craft, Man Wah, and Southern Motion.

Our wholesale business also faces additional market pressures from foreign manufacturers entering the United States market and increased direct purchases from foreign suppliers by large United States retailers.

Additionally, our wholesale business faces increased market pressures from foreign manufacturers entering the United States market and increased direct purchases from foreign suppliers by large United States retailers.

The La-Z-Boy Furniture Galleries ® stores operate in the retail furniture industry in the United States and Canada, and different stores have different competitors based on their geographic locations.

Some competitors include:

Arhaus, Ashley, Bassett Furniture Direct, Bob's Discount Furniture, Crate and Barrel, Ethan Allen, Restoration Hardware, Havertys, Williams-Sonoma, as well as several other regional competitors (for example Raymour & Flanigan Furniture, Mathis Brothers, and Slumberland Furniture), and family-owned independent furniture stores.

Our Joybird business sells almost exclusively online and competes primarily with Amazon, Article, CB2, Love Sac, Maiden Home, Wayfair and West Elm.

In addition to the larger competitors listed above, a substantial number of small and medium-sized companies operate within our business segments, all of which are highly competitive.

In addition, alternative distribution channels have increasingly affected our retail markets.

Direct-to-consumer brands bypass brick and mortar retailers entirely or in some cases have developed a product that can be shipped more easily than traditional upholstered furniture, thus increasing competition for our products.

The increased ability of consumers to purchase furniture through various furniture manufacturers' and digital-only retailers' internet websites has also increased competition in the industry.

Although digital retailers operate with lower overhead costs than a brick-and-mortar retailer, customer acquisition costs and advertising spend is typically much higher.

Department stores and big box retailers with an online presence also offer products that compete with some of our product lines.

Trademarks, Licenses and Patents

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We also license the use of the La-Z-Boy trademark on contract office furniture, outdoor furniture, and non-furniture products, as these arrangements enhance our brand awareness, broaden the perceptions of La-Z-Boy, and create visibility of the La-Z-Boy brand in channels outside of the residential furniture industry.

In addition, we license to our branded dealers the right to use our La-Z-Boy trademark in connection with the sale of our products and related services, on their signs, and in other ways, which we consider to be a key part of our marketing strategies.

In addition, we license to our branded dealers the right to use our La-Z-Boy trademark in connection with the sale of

our products and related services, on their signs, and in other ways, which we consider to be a key part of our marketing strategies.

We provide more information about those dealers under "Customers."

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We employed approximately 10,500 full-time equivalent employees as of April 29, 2023, compared with approximately 12,800 employees at the end of fiscal 2022.

The increase in headcount was primarily due to an increase in production and capacity at our Mexico manufacturing facilities to meet demand, along with our acquisition of the U.K.

manufacturing business in the third quarter of fiscal 2022.

The decrease in headcount was primarily due to the initiative to drive improved efficiencies through optimized staffing levels within our US, Mexico and Thailand plants.

As of April 29, 2023, we employed approximately 8,200 employees in our Wholesale segment, 1,600 in our Retail segment, 480 in our Joybird business, with the remaining employees being corporate personnel.

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Our people practices are linked to our sustainability initiatives.

The sustainable culture we’re building empowers employees to do what is right in the workplace and in our communities.

The sustainable culture we are building is designed to empower employees to do what is right in the workplace and in our communities.

From supporting our employees’ careers and providing a safe and ethical work environment to giving back to the communities where we live and work, people are always at the heart of our brand.

Compliance and Ethics

La-Z-Boy is dedicated to upholding the highest ethical standards and working with honesty and integrity in all aspects of our business operations.

Our Code of Conduct provides a clear and thorough ethics standard for all employees, officers, and directors with respect to interactions with customers, vendors, and other staff.

Employees also undergo annual training on ethics and the Code of Conduct.

We also maintain an Ethics Hotline to make it easy for employees and suppliers to report any concerns.

This line is available 24 hours a day and is operated by a third-party.

Reports are taken by trained professionals and promptly forwarded to our Corporate Compliance team.

Employees may also communicate any concerns through a dedicated online portal.

Diversity, Inclusion and Belonging

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• Leveraging our Diversity, Inclusion and Belonging Council to provide enterprise-wide leadership focused on supporting all our employees, developing training and learning opportunities for our employees on diversity, unconscious bias and other topics, and creating sustainable plans to increase diversity in talent acquisition;

• Expanding our support of employee resource groups, which include groups focused on Multicultural, Pride and Working Parents.

• Expanding our support of employee resource groups ("ERGs"), which include groups focused on Multicultural, Pride, Working Parents & Caregivers and Women.

Our ERG’s provide learning and mentorship experiences for our diverse employees, supporting our objective of creating diversity awareness across our organization, and helping our employees use their collective voices to positively impact our Company and the communities in which we operate our business and live;

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We work to forge relationships with agencies, such as the Occupational Safety and Health Administration (OSHA), to understand how we can best adhere to health and safety practices.

During the COVID-19 pandemic, we worked with county health departments to approve our return-to-office and employee safety protocols before bringing employees back to our manufacturing plants.

Additionally, the National Safety Council (NSC) has recognized La-Z-Boy with hundreds of awards for safety performance and leadership throughout the Company’s history.

This includes our recognition as a five-time recipient of the Corporate Safety Culture Award and the Green Cross for Safety Excellence award, which recognizes only one corporation each year for outstanding achievements in safety.

Additionally, the National Safety Council (NSC) has recognized La-Z-Boy with multiple awards for safety performance and leadership throughout the Company’s history.

This includes our recognition as a six-time recipient of the Corporate Culture of Safety Award and our recognition as a recipient of the Green Cross for Safety Excellence Award, which recognizes only one corporation each year for outstanding achievement in safety.

Training and Development

We encourage employee growth, curiosity, and courage.

We provide our workforce, in all areas of our business,

opportunities for both personal and career advancement, such as offering on-the-job trainings to help employees be more

effective in both current and future roles.

This includes training in the operations and retail environment

to maintain high-quality standards as we make and sell our products.

We strive to promote employees internally and to provide

new managers with the skills necessary to succeed.

Further, we have a leadership development program to train employees who are new to managing teams.

Community Giving

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La-Z-Boy is honored to be the official furniture provider for Ronald McDonald House Charities.

Throughout fiscal 2023, La-Z-Boy has continued our support of providing furniture and financial contributions to non-profit organizations with special emphasis on arts/culture/humanities, community enrichment, education and health and human services.

Our employees further exemplify the spirit of giving through leadership and volunteer efforts in their own communities, and for numerous non-profit organizations, which include the United Way, Relay for Life, Habitat for Humanity and others.

Throughout the COVID-19 pandemic, we have been committed to helping those in communities where we operate, including manufacturing masks and medical gowns during the early stages of the pandemic.

During fiscal 2022, we hosted multiple on-site clinics at several of our North American locations to keep our communities safe and these programs were critical in providing vaccine access.

For instance, our clinic in Mexico provided vaccine access to more than 12,000 community members outside of our workforce and this earned us recognition from Canacintra, an organization in Mexico representing the industrial sector and its employees.

The Company participates in the "The La-Z-Boy Summer of Caring" during the summer and "The La-Z-Boy Season of Caring" during the winter, seasonal initiatives that encourage and support employee volunteerism.

Since launching in 2018, our employees have accumulated over 35,000 hours of caring as part of these programs.

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