Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We have prepared this Management's Discussion and Analysis as an aid to understanding our financial results. It should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes to Consolidated Financial Statements. It also includes management’s analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. Refer to "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 2023 and 2021 fiscal years included 52 weeks, whereas fiscal year 2022 included 53 weeks.
Introduction
Our Business
We are the leading global producer of reclining chairs and the second largest manufacturer/distributor of residential furniture in the United States . The La-Z-Boy Furniture Galleries ® stores retail network is the third largest retailer of single-branded furniture in the United States . We manufacture, market, import, export, distribute and retail upholstery furniture products under the La-Z-Boy ® , England, Kincaid ® , and Joybird ® tradenames. In addition, we import, distribute and retail accessories and casegoods (wood) furniture products under the Kincaid ® , American Drew ® , Hammary ® , and Joybird ® tradenames.
As of April 29, 2023, our supply chain operations included the following:
• 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
• 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
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
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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: 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: to furniture retailers or distributors in the United States, Canada, and approximately 50 other countries, including the United Kingdom, China, Australia, South Korea and New Zealand; directly to consumers through retail stores that we own and operate; and through our websites, www.la-z-boy.com and www.joybird.com.
• The centerpiece of our retail distribution strategy is our network of 349 La-Z-Boy Furniture Galleries ® stores and 522 La-Z-Boy Comfort Studio ® locations, each dedicated to marketing our La-Z-Boy branded products. We consider this dedicated space to be "proprietary."
◦ La-Z-Boy Furniture Galleries ® stores help consumers furnish their homes by combining the style, comfort, and quality of La-Z-Boy furniture with our available design services. We own 171 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 522 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 2.6 million square feet of floor space outside of the United States and Canada dedicated to selling La-Z-Boy branded products.
• Our other brands, England, American Drew, Hammary, and Kincaid enjoy distribution through many of the same outlets, with slightly over half of Hammary’s sales originating through the La-Z-Boy Furniture Galleries ® store network.
◦ Kincaid and England have their own dedicated proprietary in-store programs with 614 outlets and approximately 1.9 million square feet of proprietary floor space.
◦ 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 ten small-format stores in key urban markets.
Our goal is to deliver value to our shareholders over the long term by executing our Century Vision strategic plan, in which we aim to grow sales and market share and strengthen our operating margins. The foundation of our strategic plan is to drive disproportionate growth of our two consumer brands, La-Z-Boy and Joybird, by delivering the transformational power of comfort with a consumer-first approach. We plan to drive growth in the following ways:
Expanding the La-Z-Boy brand reach
• Leveraging our connection to comfort 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-base growth opportunities. We are launching a new marketing platform in fiscal 2024, with compelling messaging to increase recognition and consideration of the brand. We expect this new messaging will enhance the appeal of our brand with a broader 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 wholesale distribution channels. Consumers experience the La-Z-Boy brand in many channels including the La-Z-Boy Furniture Galleries ® store network and the La-Z-Boy Comfort Studio ® locations, our store-within-a-store format. While consumers increasingly interact with the brand digitally, our consumers also demonstrate an affinity for visiting our stores to shop, allowing us to frequently deliver the flagship La-Z-Boy
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Furniture Galleries ® store, or La-Z-Boy Comfort Studio ® , experience and provide design services. 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. We believe there is significant growth potential for our consumer brands through these retail channels.
• Growing our La-Z-Boy Furniture Galleries® store network . 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. We are prioritizing growth of our company-owned Retail business 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 distribution centers, where we see opportunity for growth, or where we believe we have opportunities for further market penetration. Additionally, we are testing potential store formats to expand our reach to value-seeking consumers and during fiscal 2023, we opened two Outlet by La-Z-Boy stores.
Profitably growing the Joybird brand
• Profitably growing the Joybird brand with a digital-first consumer experience. 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
• Enhancing our enterprise capabilities to support the growth of our consumer brands and enable potential acquisitions for growth. Key to successful growth is ensuring we have the capabilities to support that growth, including an agile supply chain, modern technology for consumers and employees, and by delivering a human-centered employee experience. Through our Century Vision plan, we have several initiatives focused on enhancing these capabilities with a consumer-first focus.
Our reportable operating segments include the Wholesale segment and the Retail segment.
• Wholesale Segment . Our Wholesale segment consists primarily of three operating segments: La-Z-Boy, our largest operating segment, our England subsidiary, and our casegoods operating segment that sells furniture under three brands: American Drew ® , Hammary ® and Kincaid ® . The Wholesale segment also includes our international wholesale 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 bedroom sets, dining room sets, entertainment centers and occasional pieces. The Wholesale segment sells directly to La-Z-Boy Furniture Galleries ® stores, operators of La-Z-Boy Comfort Studio ® locations, England Custom Comfort Center locations, major dealers, and a wide cross-section of other independent retailers.
• Retail Segment . Our Retail segment consists of one operating segment comprised of our 171 company-owned La-Z-Boy Furniture Galleries ® stores. The Retail segment sells primarily upholstered furniture, in addition to some casegoods and other accessories, to end consumers through these stores.
• Corporate & Other . Corporate & Other includes the shared costs for corporate functions, including human resources, information technology, finance and legal, in addition to revenue generated through royalty agreements with companies licensed to use the La-Z-Boy ® brand name on various products. We consider our corporate functions to be other business activities and have aggregated them with our other insignificant operating segments, including our global trading company in Hong Kong and Joybird, an e-commerce retailer that manufactures upholstered furniture such as sofas, loveseats, chairs, ottomans, sleeper sofas and beds, and also imports casegoods (wood) furniture such as occasional tables and other accessories. Joybird sells to the end consumer primarily online through its website, www.joybird.com. None of the operating segments included in Corporate & Other meet the requirements of reportable segments.
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Results of Operations
The following discussion provides an analysis of our results of operations and reasons for material changes therein for fiscal year 2023 as compared with fiscal year 2022. Refer to "Results of Operations" in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2022 Annual Report on Form 10-K, filed with the SEC on June 21, 2022, for an analysis of the fiscal year 2022 results as compared to fiscal year 2021.
Impact of COVID-19
Beginning in the fourth quarter of fiscal 2020, we experienced significant changes in our business resulting from the COVID-19 pandemic. After temporarily closing due to state and local restrictions, when our retail and manufacturing locations reopened early in fiscal 2021, we experienced a significant surge in demand as consumers allocated more discretionary spending to home furnishings. During this time, we took several actions to increase our manufacturing capacity but due to the strong pace of incoming written orders outpacing production, combined with pricing and surcharge actions taken in response to inflationary cost pressures resulting from global supply chain challenges, our backlog increased to record levels. While sales demand trends remain strong compared to pre-pandemic levels, they have slowed relative to those experienced during the peak of the pandemic as consumer spending patterns shift and during fiscal 2023 we have worked through the majority of our backlog built in prior periods.
Fiscal Year 2023 and Fiscal Year 2022
La-Z-Boy Incorporated
(52 weeks) (53 weeks) (FY23 vs FY22)
(Amounts in thousands, except percentages) 4/29/2023 4/30/2022 % Change
Sales $ 2,349,433 $ 2,356,811 (0.3) %
Operating income 211,439 206,756 2.3 %
Operating margin 9.0% 8.8%
Sales
Consolidated sales in fiscal 2023 decreased $7.4 million, or 0.3%, compared with the prior year. We estimate the additional week in fiscal 2022 resulted in $48.9 million of additional sales in fiscal 2022 based on the average weekly sales for the fourth quarter of fiscal 2022. Absent the additional week, sales in fiscal 2023 increased 2% compared with the prior year, reflecting the realization of pricing surcharge actions taken to counteract rising raw material and freight costs from prior periods, along with a favorable impact from product and channel mix as sales in our Retail business grew. These benefits were essentially offset by a decline in delivered unit volume relative to the prior year in which we had built up a significant backlog as a result of the heightened demand driven by the impact of COVID-19.
Operating Margin
Operating margin, which is calculated as operating income as a percentage of sales, increased 20 basis points in fiscal 2023 compared with the prior year.
• Gross margin increased 400 basis points during fiscal 2023 compared with fiscal 2022.
◦ Changes in our consolidated mix improved gross margin by 250 basis points in fiscal 2023 driven by the growth of our Retail segment, which has a higher gross margin than our Wholesale segment.
◦ Pricing and surcharge actions taken in prior years to counteract inflationary cost pressures were fully realized in fiscal 2023 contributing to gross margin expansion.
◦ Raw materials and freight costs decreased sequentially throughout fiscal 2023 but negatively impacted gross margin in fiscal 2023, compared with the prior year, due to global supply chain challenges experienced predominately in the first half of fiscal 2023.
• Selling, general, and administrative ("SG&A") expense as a percentage of sales increased 380 basis points during fiscal 2023 compared with fiscal 2022.
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◦ Changes in our consolidated mix increased SG&A expense as a percentage of sales by 160 basis points in fiscal 2023 driven by growth of our Retail segment, which has a higher SG&A expense as a percentage of sales than our Wholesale segment.
◦ During fiscal 2022, we recognized a $10.7 million gain on sale-leaseback transactions for the buildings and related fixed assets of three retail stores, the absence of which resulted in a 50 basis point increase in SG&A as a percentage of sales during fiscal 2023.
◦ Charges related to the closure of our Torreón, Mexico manufacturing facility in fiscal 2023 resulted in a 40 basis point increase in SG&A as a percentage of sales.
◦ The remaining increase in SG&A as a percentage of sales in fiscal 2023 was primarily due to increased investments in marketing, to pre-pandemic levels as a percentage of sales, to drive written sales.
We explain these items further when we discuss each segment's results later in this Management's Discussion and Analysis.
Retail Segment
(52 weeks) (53 weeks) (FY23 vs FY22)
(Amounts in thousands, except percentages) 4/29/2023 4/30/2022 % Change
Sales $ 982,043 $ 804,394 22.1 %
Operating income 161,571 109,546 47.5 %
Operating margin 16.5% 13.6%
Sales
The Retail segment's sales increased $177.6 million, or 22%, in fiscal 2023 compared with fiscal 2022. We estimate the additional week in fiscal 2022 resulted in $16.6 million of additional sales in fiscal 2022 based on the average weekly sales for the fourth quarter of fiscal 2022. Absent the additional week, sales in fiscal 2023 increased 25% compared with the prior year.
The increase in the Retail segment's sales was led by a 17% increase in delivered same-stores sales, along with a $56.6 million increase in sales related to our fiscal 2023 retail store acquisitions and the full-year impact of our fiscal 2022 retail store acquisitions (refer to Note 2, Acquisitions for further information).
Written same-store sales decreased 6% in fiscal 2023 compared with fiscal 2022 reflecting softer demand across the industry driven by economic uncertainty and weaker consumer sentiment relative to the prior period which saw significant increases in consumer furniture demand. Despite these challenging industry trends, strong in-store execution led to positive written same-store sales in the back half of fiscal 2023 compared with the same period last year.
Same-store sales include the sales of all currently active stores which have been open and company-owned for each comparable period.
Operating Margin
The Retail segment's operating margin increased 290 basis points in fiscal 2023 compared with the prior year.
• Gross margin increased 80 basis points during fiscal 2023 compared with fiscal 2022, primarily due to pricing actions taken by the Retail business to offset increases in product costs.
• SG&A expense as a percentage of sales decreased 210 basis points during fiscal 2023 compared with fiscal 2022.
◦ Higher delivered sales relative to selling expenses and fixed costs, mainly occupancy expenses, was the primary driver of lower SG&A expense as a percentage of sales in fiscal 2023 compared with the prior year.
◦ Partially offsetting this benefit, 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. The absence of this gain in fiscal 2023 resulted in a 130 basis point comparative increase in SG&A expense as a percentage of sales compared with fiscal 2022.
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Wholesale Segment
(52 weeks) (53 weeks) (FY23 vs FY22)
(Amounts in thousands, except percentages) 4/29/2023 4/30/2022 % Change
Sales $ 1,215,429 $ 1,371,602
Intersegment sales 474,819 397,236
Total sales 1,690,248 1,768,838 (4.4) %
Operating income 115,215 134,013 (14.0) %
Operating margin 6.8% 7.6%
Sales
The Wholesale segment's sales decreased 4%, or $78.6 million, in fiscal 2023 compared with fiscal 2022. We estimate the additional week in fiscal 2022 resulted in $36.6 million of additional sales in fiscal 2022 based on the average weekly sales for the fourth quarter of fiscal 2022. Absent the additional week, sales in fiscal 2023 decreased 2% compared with the prior year. During fiscal 2023, sales benefited from the realization of pricing and surcharge actions taken in response to rising manufacturing costs from prior periods combined with favorable channel and product mix reflecting the shift to our La-Z-Boy Furniture Galleries network, as intercompany sales from our Wholesale segment to our Retail segment increased 20%. These benefits, however, only partially offset lower delivered volume in fiscal 2023 relative to fiscal 2022, due in part to the significant backlog built in prior periods to meet heightened demand.
Operating Margin
The Wholesale segment's operating margin decreased 80 basis points in fiscal 2023 compared with fiscal 2022.
• Gross margin increased 270 basis points during fiscal 2023 compared with fiscal 2022.
◦ Gross margin increased 430 basis points in fiscal 2023 from the combination of pricing and surcharge actions taken in prior periods along with favorable channel and product mix
◦ While raw materials and freight costs have decreased sequentially throughout fiscal 2023, gross margin in fiscal 2023 decreased 160 basis points compared with fiscal 2022 due to higher raw materials and freight costs resulting from global supply challenges, predominately experienced in the first half of fiscal 2023.
• SG&A expense as a percentage of sales increased 350 basis points during fiscal 2023 compared with fiscal 2022.
◦ Reduced fixed cost leverage and an increase in marketing expense to pre-pandemic levels, as a percentage of sales, contributed to higher SG&A expense as a percentage of sales in fiscal 2023 compared with fiscal 2022.
◦ Additionally, charges related to the closure of our Torreón, Mexico manufacturing facility in the third quarter of fiscal 2023 resulted in a 50 basis point increase in SG&A expense as a percentage of sales.
Corporate and Other
(52 weeks) (53 weeks) (FY23 vs FY22)
(Amounts in thousands, except percentages) 4/29/2023 4/30/2022 % Change
Sales $ 166,190 $ 195,959 (15.2) %
Intercompany eliminations (489,048) (412,380) 18.6 %
Operating loss (65,347) (36,803) 77.6 %
Sales
Corporate and Other sales decreased $29.8 million in fiscal 2023 compared with fiscal 2022, primarily due to a $30.0 million, or 17% decrease from Joybird, which contributed $146.4 million in sales in fiscal 2023. We estimate the additional week in fiscal 2022 resulted in $3.8 million of additional sales in fiscal 2022 based on the average weekly sales in the fourth quarter of fiscal 2022. Joybird's overall delivered volume declined in fiscal 2023 due to slowing online traffic and demand challenges consistent with those recently experienced across the e-commerce home furnishings industry. Written sales for Joybird were down 16% in fiscal 2023 compared with fiscal 2022, reflecting the industry-wide demand challenges noted above.
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Intercompany eliminations increased in fiscal 2023 compared with fiscal 2022 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 $28.5 million higher in fiscal 2023 compared with fiscal 2022.
• Higher operating loss was primarily due to Joybird's operating loss resulting from lower sales volume, higher input costs (mainly freight), reduced fixed cost leverage, and increased investments in marketing, as a percentage of sales, to drive customer acquisition and awareness.
• Additionally, we recognized pre-tax gains of $0.8 million and $3.3 million in fiscal 2023 and fiscal 2022, respectively, to reduce the fair value of the Joybird contingent consideration liability based on our most recent projections at the time for the fiscal 2023 performance period. These actions resulted in a comparative $2.5 million increase in operating loss in fiscal 2023.
Non-Operating Income (Expense)
Interest Expense and Interest Income
Interest expense was $0.4 million lower and interest income was $5.3 million higher in fiscal 2023 compared with fiscal 2022. The increase in interest income was primarily driven by higher interest rates.
Other Income (Expense), Net
Other income (expense), net was $11.8 million of expense in fiscal 2023 compared with $1.7 million of expense in fiscal 2022. The expense in fiscal 2023 was primarily due to a $10.3 million impairment of our investments in a privately held start-up company combined with exchange rate losses. The expense in fiscal 2022 was primarily due to unrealized losses on investments.
Income Taxes
Our effective income tax rate was 26.2% for fiscal 2023 and 25.9% for fiscal 2022. Refer to Note 18, Income Taxes, for additional information.
Liquidity and Capital Resources
Our sources of liquidity include cash and cash equivalents, short-term and long-term investments, cash from operations, and amounts available under our credit facility. We believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, and fulfill other cash requirements for day-to-day operations and capital expenditures, including fiscal 2024 contractual obligations.
We had cash, cash equivalents and restricted cash of $346.7 million at April 29, 2023, compared with $248.9 million at April 30, 2022. Included in our cash, cash equivalents and restricted cash at April 29, 2023, is $63.1 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 $11.6 million at April 29, 2023, compared with $27.2 million at April 30, 2022.
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The following table illustrates the main components of our cash flows:
Fiscal Year Ended
(52 weeks) (53 weeks)
(Amounts in thousands) 4/29/2023 4/30/2022
Cash Flows Provided By (Used For)
Net cash provided by operating activities $ 205,167 $ 79,004
Net cash used for investing activities (70,120) (78,371)
Net cash used for financing activities (37,139) (144,561)
Exchange rate changes (86) (1,919)
Change in cash, cash equivalents and restricted cash $ 97,822 $ (145,847)
Operating Activities
During fiscal 2023, net cash provided by operating activities was $205.2 million, an increase of $126.2 million compared with the prior year mainly due to favorable changes in working capital. Our cash provided by operating activities in fiscal 2023 was primarily attributable to net income, adjusted for non-cash items, a $53.7 million decrease in receivables and a $32.3 million decrease in inventory as we work down our backlog to pre-pandemic levels and align production with incoming order trends. This was partially offset by a $84.7 million decrease in customer deposits, reflecting the reduced backlog.
Investing Activities
During fiscal 2023, net cash used for investing activities was $70.1 million, a decrease of $8.3 million compared with the prior year due to lower capital expenditures and acquisition payments and higher proceeds from investment sales, net of purchases, partially offset by less proceeds received from the sale of assets. Cash used for investing activities in fiscal 2023 included the following:
• Cash used for capital expenditures in the period was $68.8 million, which is primarily related to La-Z-Boy Furniture Galleries ® (new stores and remodels) and Joybird store projects and upgrades at our manufacturing and distribution facilities. We expect capital expenditures to be in the range of $55 to $60 million for fiscal 2024, primarily related to improvements and expansion of our Retail and Joybird stores, replacement of machinery and equipment for various manufacturing and distribution facilities, and technology upgrades. We have no material contractual commitments outstanding for future capital expenditures.
• Cash used for acquisitions was $16.8 million, related to the acquisition of the Baton Rouge, Louisiana, Barboursville, West Virginia, Spokane, Washington and Denver, Colorado retail businesses. Refer to Note 2, Acquisitions, for additional information.
• Proceeds from the sale of investments, net of investment purchases was $15.4 million.
Financing Activities
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 29, 2023, 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 29, 2023, we were in compliance with our financial covenants under the Credit Facility. We believe our cash and cash equivalents, short-term investments, and cash from operations, in addition to our available Credit Facility, will provide adequate liquidity for our business operations over the next 12 months.
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During fiscal 2023, net cash used for financing activities was $37.1 million, a decrease of $107.4 million compared with prior year, primarily due to fewer share repurchases and holdback payments on prior-period acquisitions. Cash used for financing activities in fiscal 2023 included the following:
• Our board of directors has authorized the repurchase of Company stock and we spent $5.0 million during fiscal 2023 to repurchase 0.2 million shares. As of April 29, 2023, 7.3 million shares remained available for repurchase pursuant to this authorization. With the operating cash flows we anticipate generating in fiscal 2024, we expect to continue repurchasing Company stock.
• Cash paid to our shareholders in quarterly dividends was $29.9 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.
• Cash paid for holdback payments made on prior-period acquisitions was $5.0 million for a guaranteed payment related to the acquisition of Joybird.
Exchange Rate Changes
Due to changes in exchange rates, our cash, cash equivalents, and restricted cash decreased by $0.1 million from the end of fiscal year 2022 to the end of fiscal year 2023. These changes slightly impacted our cash balances held in Canada, Thailand, and the United Kingdom.
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 29, 2023, we had operating and finance lease payment obligations of $505.0 million and $0.4 million, respectively, with $91.7 million and $0.1 million, payable within 12 months, respectively. Refer to Note 6, Leases, for additional information.
Purchase Obligations. We had purchase obligations of $156.3 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 29, 2023, we had future guaranteed payments related to our Joybird acquisition of $5.0 million, all payable within 12 months.
Other
Our consolidated balance sheet as April 29, 2023 reflected a $1.1 million net liability for uncertain income tax positions. We do not expect that the net liability for uncertain income tax positions will significantly change within the next 12 months. The remaining balance will be settled or released as tax audits are effectively settled, statutes of limitation expire, or other new information becomes available.
We do not expect our continuing compliance with existing federal, state and local statutes dealing with protection of the environment to have a material effect on our capital expenditures, earnings, competitive position or liquidity.
Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting principles ("US GAAP"). In some cases, these principles require management to make difficult and subjective judgments regarding uncertainties and, as a result, such estimates and assumptions may significantly impact our financial results and disclosures. We base our estimates on currently known facts and circumstances, prior experience and other assumptions we believe to be reasonable. We use our best judgment in valuing these estimates and may, as warranted, use external advice. 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 record adjustments when differences are known. We consider the following accounting estimates to be critical as they require us to make assumptions that are uncertain at the time the estimate was made and changes to the estimate would have a material impact on our financial statements.
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Indefinite-Lived Intangible Assets and Goodwill
Indefinite-lived intangible assets include our American Drew trade name and the reacquired right to own and operate La-Z-Boy Furniture Galleries ® stores we have acquired. 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 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. Goodwill arising from the acquisition of our wholesale business in the United Kingdom and Ireland along with goodwill arising from the acquisition of our manufacturing business in the United Kingdom are combined into the United Kingdom reporting. The reporting unit for goodwill arising from the acquisition of Joybird is the Joybird operating segment.
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 may be impaired. We have the option to first assess qualitative factors in order to determine if it is more likely than not that the fair value of our intangible assets or reporting units are greater than their carrying value. If the qualitative assessment leads to a determination that the intangible asset/reporting unit’s fair value may be less than its carrying value, or if we elect to bypass the qualitative assessment altogether, we are required to perform a quantitative impairment test by calculating the fair value of the intangible asset/reporting unit and comparing the fair value with its associated carrying value. When we perform the 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, the market approach, in which we utilize market multiples of comparable companies, or a combination of both approaches. The income approach requires the use of significant estimates and assumptions including forecasted sales growth, operating income projections, and discount rates and changes in these assumptions may materially impact our fair value assessment. Refer to Note 7, Goodwill and Other Intangible Assets, for further information regarding our fiscal 2023 impairment testing.
Product Warranties
We account for product warranties by accruing an estimated liability when we recognize revenue on the sale of warrantied product. We estimate future warranty claims on product sales based on claim experience and periodically make adjustments to reflect changes in actual experience. We incorporate repair costs in our liability estimates, including materials, labor, and overhead amounts necessary to perform repairs, and any costs associated with delivering repaired product to our customers and consumers. We use considerable judgment in making our estimates and record differences between our estimated and actual costs when the differences are known.
Stock-Based Compensation
We measure stock-based compensation cost for equity-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period. We measure stock-based compensation cost for liability-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period. We remeasure the liability for these awards and adjust their fair value at the end of each reporting period until paid. We recognize compensation cost for stock-based awards that vest based on performance conditions ratably over the vesting periods when the vesting of such awards becomes probable. Determining the probability of award vesting requires judgment, including assumptions about future operating performance. While the assumptions we use to calculate and account for stock-based compensation awards represent management's best estimates, these estimates involve inherent uncertainties and the application of our management's best judgment. As a result, if we revise our assumptions and estimates, our stock-based compensation expense could be materially different in the future.
We estimate the fair value of each option grant using a Black-Scholes option-pricing model. We estimate expected volatility based on the historic volatility of our common shares. We estimate the average expected life using the contractual term of the stock option and expected employee exercise and post-vesting employment termination trends. We base the risk-free rate on
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U.S. Treasury issues with a term equal to the expected life assumed at the date of grant. We have elected to recognize forfeitures as an adjustment to compensation expense in the same period as the forfeitures occur.
We estimate the fair value of each performance award grant that vests based on a market condition using a Monte Carlo valuation model. 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. The stock-paths are simulated using volatilities calculated with historical information using data from a look-back period that is equal to the vesting period. The model assumes a zero-coupon, risk-free interest rate with a term equal to the vesting period. The simulations are repeated many times and the mean of the discounted values is calculated as the grant date fair value for the award. The final payout of the award as calculated by the model is then discounted back to the grant date using the risk-free interest rate.
Recent Accounting Pronouncements
Refer to Note 1, Accounting Policies, to our consolidated financial statements for a discussion of recently adopted accounting standards and other new accounting standards.