What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-22 compared with 2023-02-21 · 113 added, 110 removed, 113 unchanged (66% of the section changed)

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La-Z-Boy Incorporated and its subsidiaries (individually and collectively, "we," "our," "us," "La-Z-Boy" or the "Company") make "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Generally, forward-looking statements include information concerning expectations, projections or trends relating to our results of operations, financial results, financial condition, strategic initiatives and plans, expenses, dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, future economic performance, business and industry and the effect of the coronavirus ("COVID") pandemic on our business operations and financial results.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.

Forward-looking statements may include words such as "anticipates," "believes," "continues," "estimates," "expects," "feels," "forecasts," "hopes," "intends," "plans," "projects," "likely," "seeks," "short-term," "non-recurring," "one-time," "outlook," "target," "unusual," or words of similar meaning, or future or conditional verbs, such as "will," "should," "could," or "may." A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur.

Forward-looking statements may include words such as "aim," "anticipates," "believes," "continues," "estimates," "expects," "feels," "forecasts," "hopes," "intends," "plans," "projects," "likely," "seeks," "short-term," "non-recurring," "one-time," "outlook," "target," "unusual," or words of similar meaning, or future or conditional verbs, such as "will," "should," "could," or "may." A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur.

You should not place undue reliance on forward-looking statements, which speak to our views only as of the date of this report.

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In addition, we import, distribute and retail accessories and casegoods (wood) furniture products under the Kincaid ® , American Drew ® , Hammary ® , and Joybird ® tradenames.

As of January 28, 2023, our supply chain operations included the following:

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

As of July 29, 2023, our supply chain operations included the following:

• Five major manufacturing locations and 13 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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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 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 quarter of fiscal 2023 of $9.2 million in selling, general, and administrative expense for the impairment of various assets, primarily long-lived assets, and $0.9 million in cost of sales, primarily related to severance.

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 SG&A expense for the impairment of various assets, primarily long-lived assets, and $1.6 million in cost of sales, primarily related to severance.

During the first quarter of fiscal 2024, we terminated our lease on the Torreón facility and recognized a $1.2 million gain in SG&A expense within the Wholesale segment related to the settlement of our lease obligation on the previously impaired long-lived assets.

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 12.0 million square feet worldwide.

• Joybird sells product primarily online and has a limited amount of proprietary retail showroom floor space including seven 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 also has limited retail showroom floor space through eleven 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, our strategic plan for growth to our centennial year in 2027, 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:

• Leveraging and reinvigorating our brand with a consumer focus and expanded omni-channel presence.

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.

Our marketing platform featuring celebrity brand ambassador Kristen Bell is designed to drive brand recognition and inject youthful style and sensibility into our marketing campaign, which is intended to enhance the appeal of our brand with a younger consumer base.

We launched our new brand campaign and marketing platform in fiscal 2024, Long Live the Lazy , with compelling messaging designed 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 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 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.

• 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.

• 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.

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 currently operate two Outlet by La-Z-Boy stores.

• 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 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.

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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.

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.

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 strategic 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.

• Retail Segment .

Our Retail segment consists of one operating segment comprised of our 175 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.

• Wholesale Segment .

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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 167 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.

• Corporate and Other.

Corporate and 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.

None of the operating segments included in Corporate and Other meet the requirements of reportable segments.

Results of Operations

Fiscal 2023 Third Quarter Compared with Fiscal 2022 Third Quarter

Fiscal 2024 First Quarter Compared with Fiscal 2023 First Quarter

La-Z-Boy Incorporated

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except percentages) 1/28/2023 1/22/2022 % Change 1/28/2023 1/22/2022 % Change

Quarter Ended

(Unaudited, amounts in thousands, except percentages) 7/29/2023 7/30/2022 % Change

Sales $ 481,651 $ 604,091 (20.3)%

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Operating margin 7.2% 8.7%

Consolidated sales increased $1.2 million, or 0.2%, and $115.9 million, or 7% in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

The increase in sales for both periods reflects the realization of pricing and surcharge actions taken to counteract rising raw material and freight costs, along with a favorable impact from product and channel mix as sales in our Retail business grew.

These increases in sales more than offset a decline in delivered unit volume.

Consolidated sales decreased $122.4 million, or 20%, in the first quarter of fiscal 2024 compared with the same period a year ago.

Sales in the first quarter of fiscal 2023 were fueled by delivery of a significant backlog resulting from heightened demand from prior periods.

The decrease in sales in the first quarter of fiscal 2024, primarily due to lower unit volume, reflects a return to industry-wide seasonal trends relative to a historically high comparative period.

Partially offsetting the decline in volume, sales benefited from favorable product mix.

Operating Margin

Operating margin, which is calculated as operating income as a percentage of sales, increased 60 basis points and 110 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

• Gross margin, which is calculated as gross profit as a percentage of sales, increased 460 basis points and 330 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

◦ Changes in our consolidated mix improved gross margin by 290 basis points and 240 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, driven by growth of our Retail segment, which has a higher gross margin than our Wholesale segment.

◦ Compared with the same periods a year ago, gross margin in the third quarter and first nine months of fiscal 2023 benefited from pricing and surcharge actions taken in prior periods.

◦ The gross margin in the first nine months of fiscal 2023 was negatively impacted by higher freight and raw material costs driven by global supply chain challenges.

These costs have decreased during the fiscal year, resulting in in a gross margin benefit in the third quarter of fiscal 2023 compared with the same period last year.

• Selling, general and administrative ("SG&A") expenses as a percentage of sales increased 400 basis points and 220 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

◦ Changes in our consolidated mix increased SG&A expense as a percentage of sales by 80 basis points and 150 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, driven by growth of our Retail segment, which has a higher SG&A expense as a percentage of sales than our Wholesale segment.

◦ Charges related to the closure of our Torreón, Mexico manufacturing facility resulted in a 160 basis point and 50 basis point increase in SG&A expense as a percentage of sales in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

◦ SG&A expense as a percentage of sales was impacted during the third quarter and first nine months of fiscal 2023 by increased investments in marketing, to pre-pandemic levels as a percentage of sales, to drive written sales.

The third quarter of fiscal 2023 was further impacted by higher selling expenses, as a percentage of sales, primarily driven by higher written sales in our Retail segment.

Operating margin, which is calculated as operating income as a percentage of sales, decreased 150 basis points in the first quarter of fiscal 2024, compared with the same period a year ago.

• Gross margin, which is calculated as gross profit as a percentage of sales, increased 450 basis points in the first quarter of fiscal 2024, compared with the same period a year ago.

◦ Changes in our consolidated mix improved gross margin by 140 basis points in the first quarter of fiscal 2024 compared with the same period a year ago, driven by relative growth of our Retail segment, which has a higher gross margin than our Wholesale segment.

◦ Compared with the same period a year ago, gross margin in the first quarter fiscal 2024 further benefited from lower raw material costs and favorable product mix.

• SG&A expenses as a percentage of sales increased 600 basis points in the first quarter of fiscal 2024 compared with the same periods a year ago.

◦ Changes in our consolidated mix increased SG&A expense as a percentage of sales by 120 basis points in the first quarter of fiscal 2024 compared with the same period a year ago, driven by relative growth of our Retail segment, which has a higher SG&A expense as a percentage of sales than our Wholesale segment.

◦ The remaining increase in SG&A expense as a percentage of sales was primarily driven by lower delivered sales relative to selling expenses and fixed costs, mainly occupancy expenses.

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

Retail Segment

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except percentages) 1/28/2023 1/22/2022 % Change 1/28/2023 1/22/2022 % Change

Quarter Ended

(Unaudited, amounts in thousands, except percentages) 7/29/2023 7/30/2022 % Change

Sales $ 208,243 $ 236,021 (11.8)%

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Operating margin 14.1% 16.2%

The Retail segment’s sales increased $54.1 million, or 27%, and $168.0 million, or 29% in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, led by a 23% and 24% increase in delivered same-store sales for each respective period.

Additionally, the Retail segment benefited from a $14.3 million and a $44.1 million increase in the third quarter and first nine months of fiscal 2023, respectively, from sales related to our retail store acquisitions that occurred in fiscal 2022 and fiscal 2023.

Written same-store sales increased 3% but decreased 8% in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

The decrease in the first nine months of fiscal 2023 reflects 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.

Although these challenging industry trends continued through the third quarter of fiscal 2023, the benefit of pricing actions taken in prior periods and strong store-level execution with improved conversion drove an increase in written sales compared with the same period last year.

The Retail segment’s sales decreased $27.8 million, or 12%, in the first quarter of fiscal 2024 compared with the same period a year ago, primarily due to a 16% decline in delivered same-store sales, as sales in the first quarter of fiscal 2023 reached historic levels benefitting from delivery of the backlog built in prior periods.

The decrease in delivered same-store sales was partially offset by a $9.1 million increase in sales from our retail store acquisitions that occurred in fiscal 2023 and fiscal 2024.

While delivered sales were down relative to the prior year, written same-store sales increased 2% in the first quarter of fiscal 2024 compared with the same period a year ago, reflecting continued strong store-level execution with improved conversion and higher design sales despite challenging industry trends.

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 540 basis points and 480 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

• Gross margin increased 110 basis points and 40 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, 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 430 basis points and 440 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, primarily due to higher delivered sales relative to selling expenses and fixed costs, mainly occupancy expenses.

The Retail segment's operating margin decreased 210 basis points in the first quarter of fiscal 2024 compared with the same period a year ago.

• Gross margin increased 130 basis points in the first quarter of fiscal 2024 compared with the same period a year ago, primarily due to prior period pricing actions taken by the Retail business which were realized in the first quarter of this fiscal year as products were delivered to consumers.

• SG&A expense as a percentage of sales increased 340 basis points in the first quarter of fiscal 2024 compared with the same period a year ago, primarily due to lower delivered sales relative to selling expenses and fixed costs, mainly occupancy expenses.

Wholesale Segment

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except percentages) 1/28/2023 1/22/2022 % Change 1/28/2023 1/22/2022 % Change

Quarter Ended

(Unaudited, amounts in thousands, except percentages) 7/29/2023 7/30/2022 % Change

Sales to external customers $ 236,251 $ 323,728

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Operating margin 7.0% 5.9%

The Wholesale segment’s sales decreased $15.7 million, or 4% but increased $39.8 million, or 3% in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

Over the same periods, intercompany sales from our Wholesale segment to our Retail segment increased 23% and 28%, respectively.

Total sales in both periods benefited from the realization of pricing and surcharge actions taken in response to rising manufacturing costs, combined with favorable channel and product mix reflecting the shift to our La-Z-Boy Furniture Galleries ® network.

These benefits more than offset a decline in delivered volume in the first nine months of fiscal 2023, as we continue to work down the backlog built up in prior periods back to pre-pandemic levels, but only partially offset lower delivered volume in the third quarter of fiscal 2023.

The Wholesale segment’s sales decreased $108.3 million, or 25%, in the first quarter of fiscal 2024 compared with the same period a year ago.

Over the same period, intercompany sales from our Wholesale segment to our Retail segment decreased 18%.

The decrease in sales reflects a decline in delivered unit volume as the significant backlog built up in prior periods returns to pre-pandemic levels and the industry returns to typical seasonality.

Partially offsetting lower volume, sales benefited from a favorable shift in product mix toward higher priced products.

Operating Margin

The Wholesale segment's operating margin decreased 230 basis points and 80 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

• Gross margin increased 300 basis points and 200 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

◦ Gross margin increased 250 basis points and 520 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, from pricing and surcharge actions taken in response to rising raw material costs resulting from global supply challenges in prior periods.

◦ Declining freight costs drove an 80 basis point and 40 basis point increase in gross margin during the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

◦ Higher raw material costs led to a 160 basis point decrease in gross margin during the first nine months of fiscal 2023 compared with same period a year ago.

◦ Gross margin decreased 100 basis points in the first nine months of fiscal 2023, compared with the same period a year ago, due to higher costs related to plant inefficiencies during the first half of fiscal 2023.

• SG&A expense as a percentage of sales increased 530 basis points and 280 basis points in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago

◦ 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 the third quarter of fiscal 2023 and, to a lesser extent, in the first nine months of fiscal 2023, compared with the same periods a year ago.

◦ Additionally, charges related to the closure of our Torreón, Mexico manufacturing facility in the third quarter of fiscal 2023, resulted in a 230 basis point and 70 basis point increase in SG&A expense as a percentage of sales in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

The Wholesale segment's operating margin increased 110 basis points in the first quarter of fiscal 2024 compared with the same period a year ago.

• Gross margin increased 470 basis points in the first quarter of fiscal 2024 compared with the same period a year ago.

◦ Declining raw material costs drove a 400 basis point increase in gross margin during the first quarter of fiscal 2024 compared with the same period a year ago.

◦ Gross margin further improved 120 basis points from a favorable shift in product mix during the first quarter of fiscal 2024 compared with the same period a year ago.

◦ Unfavorable fluctuations in the Mexican peso relative to the U.S.

dollar, drove higher production-related costs for our manufacturing operations in Mexico, resulting in a 50 basis point decrease in gross margin during the first quarter of fiscal 2024 compared with the same period a year ago.

• SG&A expense as a percentage of sales increased 360 basis points in the first quarter of fiscal 2024 compared with the same period a year ago.

◦ Reduced fixed cost leverage and an increase in marketing expense, as a percentage of sales, contributed to higher SG&A expense as a percentage of sales in the first quarter of fiscal 2024 compared with the same period a year ago.

◦ During the first quarter of fiscal 2024 we terminated our lease on the Torreón facility that was closed during the fourth quarter of fiscal 2023 and recognized a $1.2 million gain related to the settlement of our lease obligation on the previously impaired long-lived assets, resulting in a 40 basis point decrease in SG&A expense as a percentage of sales.

Corporate and Other

Quarter Ended Nine Months Ended

(Unaudited, amounts in thousands, except percentages) 1/28/2023 1/22/2022 % Change 1/28/2023 1/22/2022 % Change

Quarter Ended

(Unaudited, amounts in thousands, except percentages) 7/29/2023 7/30/2022 % Change

Sales $ 40,061 $ 48,730 (17.8)%

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Operating loss (18,241) (11,651) (56.6)%

Corporate and Other sales decreased $16.5 million and $12.7 million in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago.

The change in sales was primarily led by Joybird sales which decreased 35% to $28.9 million and 11% to $109.7 million in the third quarter and first nine months of fiscal 2023, respectively.

While Joybird sales benefited from increased online conversion, overall delivered volume declined due to lower written sales from the prior sequential quarter combined with slowing online traffic and demand challenges consistent with those recently experienced across the e-commerce home furnishings industry.

Written sales for Joybird were down 21% and 14% in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, reflecting the items noted above.

Intercompany eliminations increased in the third quarter and first nine months of fiscal 2023 compared with the same periods a year ago due to higher sales from our Wholesale segment to our Retail segment.

Corporate and Other sales decreased $8.7 million in the first quarter of fiscal 2024 compared with the same period a year ago.

The change in sales was primarily led by Joybird sales which decreased $7.1 million to $35.6 million in the first quarter of fiscal 2024, largely due to lower delivered volume resulting from continued demand challenges consistent with those recently experienced across the e-commerce home furnishings industry.

Written sales for Joybird were also down 17% in the first quarter of fiscal 2024 compared with the same period a year ago.

Intercompany eliminations decreased in the first quarter of fiscal 2024 compared with the same period a year ago due to lower sales from our Wholesale segment to our Retail segment.

Operating Loss

Our Corporate and Other operating loss increased $6.0 million and $18.4 million in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, primarily due to Joybird's operating loss resulting from lower sales volume and higher input costs.

Additionally, operating loss was impacted in the first nine months of fiscal 2023 by increased investments in marketing to drive customer acquisition and awareness.

Our Corporate and Other operating loss increased $6.6 million in the first quarter of fiscal 2024 compared with the same period a year ago, primarily due to higher intercompany inventory profit elimination adjustments, lower operating profit from our global trading company in Hong Kong, and higher Joybird operating losses, primarily resulting from lower sales volume and higher fixed costs, partially offset by lower input costs.

Non-Operating Income (Expense)

Interest Income

Interest income was $1.2 million and $2.6 million higher in the third quarter and first nine months of fiscal 2023, respectively, compared with the same periods a year ago, primarily driven by higher interest rates.

Interest income was $2.6 million higher in the first quarter of fiscal 2024 compared with the same period a year ago, primarily driven by higher interest rates.

Other Income (Expense), Net

Other income (expense), net was $1.1 million and $0.8 million of expense in the third quarter and first nine months of fiscal 2023, respectively, primarily due to exchange rate losses.

Other income (expense), net was $1.5 million and $0.5 million of expense in the third quarter and first nine months of fiscal 2022, respectively, primarily due to unrealized losses on investments and exchange rate losses, respectively.

Our effective tax rate was 27.7% and 26.6% for the third quarter and nine months ended January 28, 2023, respectively, compared with 24.8% and 25.9% for the third quarter and nine months ended January 22, 2022, respectively.

The effective tax rate in the third quarter and first nine months of fiscal 2022 was lower partially due to non-taxable gains on corporate owned life insurance and state taxes.

Other income (expense), net was $0.6 million of income in the first quarter of fiscal 2024, primarily due to unrealized gains on investments and exchange rate gains.

Other income (expense), net was de minimis in the first quarter of fiscal 2023.

Our effective tax rate was 26.5% for both the first quarter of fiscal 2024 and the first quarter of fiscal 2023.

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

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Our sources of liquidity include cash and cash equivalents, short-term and long-term investments, cash from operations, and amounts available under our credit facility.

We believe these sources remain adequate to meet our short-term and long-term liquidity requirements, finance our long-term growth plans, and fulfill other cash requirements for day-to-day operations and capital expenditures.

We had cash, cash equivalents and restricted cash of $284.0 million at January 28, 2023, compared with $248.9 million at April 30, 2022.

In addition, we had investments to enhance our returns on cash of $15.8 million at January 28, 2023, compared with $27.2 million at April 30, 2022.

We had cash, cash equivalents and restricted cash of $340.3 million at July 29, 2023, compared with $346.7 million at April 29, 2023.

In addition, we had investments to enhance our returns on cash of $10.6 million at July 29, 2023, compared with $11.6 million at April 29, 2023.

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

Nine Months Ended

Quarter Ended

(Unaudited, amounts in thousands) 7/29/2023 7/30/2022

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Operating Activities

During the first nine months of fiscal 2023, net cash provided by operating activities was $127.1 million.

Our cash provided by operating activities was primarily attributable to net income, adjusted for non-cash items and a $42.5 million decrease in receivables.

This was partially offset by a $61.2 million decrease in customer deposits, as we continue to work down our backlog to pre-pandemic levels.

During the first quarter of fiscal 2024, net cash provided by operating activities was $25.9 million, a decrease of $7.2 million compared with the prior year, mainly due to lower net income and less favorable changes to working capital, partially offset by a smaller reduction in customer deposits.

Our cash provided by operating activities in fiscal 2024 was primarily attributable to net income, adjusted for non-cash items, a $14.8 million decrease in receivables and a $9.3 million decrease in inventory as we align production with incoming order trends.

This was partially offset by a $26.2 million decrease in other liabilities, primarily due to the payout of our fiscal 2023 incentive compensation awards during the first quarter of fiscal 2024 along with a $9.4 million decrease in customer deposits reflecting the reduced backlog.

Investing Activities

During the first nine months of fiscal 2023, net cash used for investing activities was $58.0 million, primarily due to the following:

• Cash used for capital expenditures in the period was $57.4 million compared with $58.6 million during the first nine months of fiscal 2022, which primarily related to improvements to our retail stores, new store openings, and plant upgrades to our upholstery manufacturing and distribution facilities in Neosho, Missouri.

Spending on these items will continue in fiscal 2023 with full year fiscal 2023 capital expenditures expected to be in the range of $75 to $80 million.

During the first quarter of fiscal 2024, net cash used for investing activities was $12.7 million, a decrease of $13.3 million compared with the prior year primarily due to lower capital expenditures and higher proceeds from asset sales.

Cash used for investing activities in fiscal 2024 included the following:

• Cash used for capital expenditures in the period was $13.5 million compared with $21.0 million during the first quarter of fiscal 2023, which is primarily related to La-Z-Boy Furniture Galleries ® (new stores and remodels) and upgrades at our manufacturing and distribution facilities.

We anticipate that spending on these items will continue in fiscal 2024 with full year fiscal 2024 capital expenditures expected to be in the range of $50 to $60 million.

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

• Cash used for acquisitions was $11.9 million, primarily related to the acquisition of the Denver, Colorado and Spokane, Washington retail businesses.

• Proceeds from the sale of investments, net of investment purchases, was $11.2 million.

• Cash used for acquisitions was $4.3 million, primarily related to the acquisition of the Colorado Springs, Colorado retail business.

Financing Activities

On October 15, 2021, we entered into a five-year $200.0 million unsecured revolving credit facility (the “Credit Facility”).

On October 15, 2021, we entered into a five-year $200 million unsecured revolving credit facility (as amended, 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 an 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 January 28, 2023, we have no borrowings outstanding under the Credit Facility.

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 July 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 January 28, 2023, 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.

During the first nine months of fiscal 2023, net cash used for financing activities was $33.9 million, primarily due to the following:

• Our board of directors has authorized the repurchase of company stock and we spent $5.0 million in the first nine months of fiscal 2022 to repurchase 0.2 million shares.

As of January 28, 2023, 7.3 million shares remained available for repurchase pursuant to this authorization.

As of July 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.

During the first quarter of fiscal 2024, net cash used for financing activities was $19.9 million, an increase of $6.1 million compared with the prior year, primarily due to higher share repurchases.

Cash used for financing activities in fiscal 2024 included the following:

• Our board of directors has authorized the repurchase of company stock and we spent $10.0 million in the first quarter of fiscal 2024 to repurchase 0.4 million shares.

As of July 29, 2023, 6.9 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 $7.9 million.

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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 the guaranteed payments related to the acquisition of Joybird.

Exchange Rate Changes

From the end of fiscal year 2022 to the end of the third quarter of fiscal 2023, changes in exchange rates had a de minimis impact on our cash, cash equivalents, and restricted cash, slightly impacting our cash balances held in Canada, Thailand, and the United Kingdom.

During the third quarter of fiscal 2023, there were no material changes to the information about our contractual obligations and commitments shown in the table contained in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.

Due to changes in exchange rates, our cash, cash equivalents, and restricted cash increased by $0.2 million for the three months ended July 29, 2023.

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

During the first quarter of fiscal 2024, there were no material changes to the information about our contractual obligations and commitments disclosed in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.

We do not expect our continuing compliance with existing federal, state and local statutes dealing with protection of the environment to have a material effect on our capital expenditures, earnings, competitive position or liquidity.

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We disclosed our critical accounting policies in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.

There were no material changes to our critical accounting policies or estimates during the nine months ended January 28, 2023.

There were no material changes to our critical accounting policies or estimates during the quarter ended July 29, 2023.

Recent Accounting Pronouncements

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

During the first nine months of fiscal 2023, there were no material changes from the information contained in Item 7A of our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.

During the first quarter of fiscal 2024, there were no material changes from the information contained in Item 7A of our Annual Report on Form 10-K for the fiscal year ended April 29, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis