LA-Z-BOY INC 10-Q

ITEM 2. 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. After a cautionary note regarding forward-looking statements, we begin with an introduction to our key businesses and then provide discussions of our results of operations, liquidity and capital resources, and critical accounting policies. Cautionary Note Regarding Forward-Looking Statements 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, and our business and industry. 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 "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. These forward-looking statements are all based on currently available operating, financial, and competitive information and are subject to various risks and uncertainties, many of which are unforeseeable and beyond our control. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial performance. Our actual future results and trends may differ materially from those we anticipate depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed in our Annual Report for the fiscal year ended April 29, 2023, under Item 1A, "Risk Factors" and Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in our other filings with the Securities and Exchange Commission ("SEC"). Given these risks and uncertainties, you should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in our Annual Report for the fiscal year ended April 29, 2023 or any other public statement made by us, including by our management, may turn out to be incorrect. We are including this cautionary note to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or for any other reason. 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 October 28, 2023, our supply chain operations included the following: • Five major manufacturing locations and 14 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 21 Table of Contents 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. 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 ("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. During the second quarter of fiscal 2024, we announced further actions intended to drive efficiencies and optimize our manufacturing capacity in our global supply chain operations. As part of this initiative, we made the decision to shift upholstery production from our Ramos, Mexico operations to our other upholstery plants and relocate our cut and sew operations back to Ramos, Mexico, resulting in the permanent closure of our leased cut and sew facility in Parras, Mexico. As a result of these actions, charges were recorded within the Wholesale segment in the second quarter of fiscal 2024, totaling $3.6 million in cost of sales, primarily related to severance, and $3.0 million in SG&A expense for the accelerated depreciation of fixed assets. 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 353 La-Z-Boy Furniture Galleries ® stores and 521 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 177 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 521 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 623 outlets and approximately 1.8 million square feet of proprietary floor space. • In total, our proprietary floor space includes approximately 12.0 million square feet worldwide. • Joybird sells product primarily online and also has limited retail showroom floor space through 11 small-format stores in key urban markets. Century Vision Strategy 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: 22 Table of Contents 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 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. • 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 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. 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. 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 strategic plan, we have several initiatives focused on enhancing these capabilities with a consumer-first focus. Reportable Segments Our reportable operating segments include the Retail segment and the Wholesale segment. • Retail Segment . Our Retail segment consists of one operating segment comprised of our 177 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 . 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 23 Table of Contents 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. • 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 and Other meet the requirements of reportable segments. Results of Operations Fiscal 2024 Second Quarter Compared with Fiscal 2023 Second Quarter La-Z-Boy Incorporated Quarter Ended Six Months Ended (Unaudited, amounts in thousands, except percentages) 10/28/2023 10/29/2022 % Change 10/28/2023 10/29/2022 % Change Sales $ 511,435 $ 611,332 (16.3)% $ 993,086 $ 1,215,423 (18.3) % Operating income 33,612 61,883 (45.7)% 68,138 114,526 (40.5) % Operating margin 6.6% 10.1% 6.9% 9.4% Sales Consolidated sales decreased $99.9 million, or 16%, and $222.3 million, or 18%, in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. Sales in the first six months of fiscal 2023 were fueled by the delivery of a significant backlog resulting from heightened demand in prior periods. As a result, the decrease in sales during the second quarter and first six months of fiscal 2024 reflects a return to industry-wide seasonal trends relative to a historically high comparative period. To a lesser extent, sales also decreased in the second quarter and first six months of fiscal 2024 as a result of selective pricing and promotional actions taken to maintain competitiveness. Operating Margin Operating margin, which is calculated as operating income as a percentage of sales, decreased 350 basis points and 250 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. • Gross margin, which is calculated as gross profit as a percentage of sales, increased 270 basis points and 360 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. ◦ Changes in our consolidated mix improved gross margin by 70 basis points in the first six months 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. ◦ Lower input costs, led by declining raw material costs and favorable duty expense, improved gross margin in the second quarter and first six months of fiscal 2024, compared with the same periods a year ago. As input costs continued to decline, we took selective pricing and promotional actions to maintain competitiveness, which partially offset these benefits. ◦ Compared with the same period a year ago, gross margin in the first six months of fiscal 2024 further benefited from a favorable shift in product mix toward higher priced products. 24 Table of Contents ◦ During the second quarter of fiscal 2024 we recognized $3.6 million in severance-related charges as part of our global supply chain optimization initiative, resulting in a 70 basis point and 40 basis point decrease in gross margin in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. • SG&A expenses as a percentage of sales increased 620 basis points and 610 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. ◦ Changes in our consolidated mix increased SG&A expense as a percentage of sales by 60 basis points in the first six months 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. ◦ As a part of our global supply chain optimization initiatives, during the first quarter of fiscal 2024 we recognized a $1.2 million gain related to the settlement of our Torreón, Mexico lease obligation on previously impaired long-lived assets and during the second quarter of fiscal 2024, we recognized $3.0 million in accelerated depreciation related to long-lived assets at our Ramos, Mexico facility. Together, these items resulted in a 60 basis point and 20 basis point increase in SG&A expense as a percentage of sales in the second quarter and first six months of fiscal 2024, respectively. ◦ 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 as total SG&A expenses were up $1.4 million and down $5.8 million in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. We discuss each segment’s results in the following section. Retail Segment Quarter Ended Six Months Ended (Unaudited, amounts in thousands, except percentages) 10/28/2023 10/29/2022 % Change 10/28/2023 10/29/2022 % Change Sales $ 214,309 $ 252,152 (15.0)% $ 422,552 $ 488,173 (13.4) % Operating income 27,935 41,500 (32.7)% 57,199 79,652 (28.2) % Operating margin 13.0% 16.5% 13.5% 16.3% Sales The Retail segment’s sales decreased $37.8 million, or 15%, and $65.6 million, or 13%, in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago, primarily due to a decline in delivered same-store sales resulting from the adverse comparison to historic sales levels in the prior year, which were fueled by the delivery of previously built backlog. The decrease in delivered same-store sales was partially offset by a $5.7 million and $13.7 million increase in sales during the second quarter and first six months of fiscal 2024, respectively, from our retail store acquisitions that occurred in fiscal 2023 and fiscal 2024. While delivered sales were down relative to the same periods last year, written sales were up 3% and 5% in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. The increases were driven by relatively flat and a 1% increase in written same-store sales for the second quarter and first six months of fiscal 2024, respectively, with the remainder primarily attributable to acquired retail stores. 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 decreased 350 basis points and 280 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. • Gross margin increased 90 basis points and 120 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago, primarily due to prior period pricing actions taken by the Retail business which were realized as products were delivered to consumers. • SG&A expense as a percentage of sales increased 440 basis points and 400 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago, primarily due to lower delivered sales relative to selling expenses and fixed costs, mainly occupancy expenses. 25 Table of Contents Wholesale Segment Quarter Ended Six Months Ended (Unaudited, amounts in thousands, except percentages) 10/28/2023 10/29/2022 % Change 10/28/2023 10/29/2022 % Change Sales to external customers $ 263,738 $ 319,613 $ 499,989 $ 643,341 Intersegment sales 101,229 126,618 198,453 244,708 Total Sales 364,967 446,231 (18.2)% 698,442 888,049 (21.4) % Operating income 21,450 38,476 (44.3)% 44,953 64,618 (30.4) % Operating margin 5.9% 8.6% 6.4% 7.3% Sales The Wholesale segment’s sales decreased $81.3 million, or 18%, and $189.6 million, or 21%, in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. Over the same periods, intercompany sales from our Wholesale segment to our Retail segment decreased 20% and 19%, respectively. The decrease in sales primarily 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. To a lesser extent, sales also decreased in the second quarter and first six months of fiscal 2024, as a result of selective pricing and promotional actions taken to maintain competitiveness. Operating Margin The Wholesale segment's operating margin decreased 270 basis points and 90 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. • Gross margin increased 250 basis points and 360 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. ◦ Favorable input costs, including declining raw material costs and duty expense, drove a 610 basis point and 490 basis point increase in gross margin during the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. With the continued decline in input costs, we took selective pricing and promotional actions to maintain competitiveness, resulting in a 250 basis point and 150 basis point decrease in gross margin, compared with the same respective periods of the prior year. ◦ Gross margin in the first six months of fiscal 2024 also benefited 60 basis points from a favorable shift in product mix towards higher priced products. ◦ During the second quarter of fiscal 2024 we recognized $3.6 million in severance-related charges as part of our global supply chain optimization initiative, resulting in a 100 basis point and 50 basis point decrease in gross margin in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. • SG&A expense as a percentage of sales increased 520 basis points and 450 basis points in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. ◦ Reduced fixed cost leverage contributed to higher SG&A expense as a percentage of sales in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. ◦ Higher marketing expense in support of our Long Live the Lazy campaign launch drove a 230 basis point and 160 basis point increase in SG&A expense as a percentage of sales in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. Investments in this campaign support all La-Z-Boy branded products, including those sold through our Retail segment. ◦ As a part of our global supply chain optimization initiatives, during the first quarter of fiscal 2024 we recognized a $1.2 million gain related to the settlement of our Torreón, Mexico lease obligation on previously impaired long-lived assets and during the second quarter of fiscal 2024, we recognized $3.0 million in accelerated depreciation related to long-lived assets at our Ramos, Mexico facility. Together, these items resulted in an 80 basis point and 30 basis point increase in SG&A expense as a percentage of sales in the second quarter and first six months of fiscal 2024, respectively. 26 Table of Contents Corporate and Other Quarter Ended Six Months Ended (Unaudited, amounts in thousands, except percentages) 10/28/2023 10/29/2022 % Change 10/28/2023 10/29/2022 % Change Sales $ 36,232 $ 43,637 (17.0)% $ 76,293 $ 92,367 (17.4) % Intercompany eliminations (104,073) (130,688) 20.4% (204,201) (253,166) 19.3 % Operating loss (15,773) (18,093) 12.8% (34,014) (29,744) (14.4) % Sales Corporate and Other sales decreased $7.4 million and $16.1 million in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago. The change in sales was primarily led by Joybird sales which decreased $5.8 million to $32.3 million and $12.9 million to $67.9 million in the second quarter and first six months of fiscal 2024, respectively, largely due to lower delivered volume resulting from continued demand challenges. Compared with the respective periods a year ago, written sales for Joybird were up 5% in the second quarter of fiscal 2024, resulting from effective marketing investments driving higher website traffic, but down 8% in the first six months of fiscal 2024. Intercompany eliminations decreased in the second quarter and first six months of fiscal 2024 compared with the same periods a year ago due to lower sales from our Wholesale segment to our Retail segment. Operating Loss Our Corporate and Other operating loss decreased $2.3 million in the second quarter of fiscal 2024, but increased $4.3 million in the first six months of fiscal 2024, compared with the same periods a year ago. The second quarter of fiscal 2024 benefited from improved Joybird operating performance while the first six months of fiscal 2024 experienced lower operating profit from our global trading company in Hong Kong. Additionally, Corporate and Other's operating loss includes intercompany inventory profit elimination adjustments which were favorable in the second quarter but unfavorable during the first six months of fiscal 2024, compared with the same periods a year ago. Non-Operating Income (Expense) Interest Income Interest income was $2.9 million and $5.5 million higher in the second quarter and first six months of fiscal 2024, respectively, compared with the same periods a year ago, primarily driven by higher interest rates on higher cash balances. Income Taxes Our effective tax rate was 26.5% for both the second quarter and first six months of fiscal 2024 compared with 25.8% and 26.2% for the second quarter and first six months of fiscal 2023. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes. 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 $333.5 million at October 28, 2023, compared with $346.7 million at April 29, 2023. In addition, we had investments to enhance our returns on cash of $8.7 million at October 28, 2023, compared with $11.6 million at April 29, 2023. 27 Table of Contents The following table illustrates the main components of our cash flows: Six Months Ended (Unaudited, amounts in thousands) 10/28/2023 10/29/2022 Cash Flows Provided By (Used For) Net cash provided by operating activities $ 56,876 $ 30,954 Net cash used for investing activities (25,304) (44,138) Net cash used for financing activities (43,883) (25,937) Exchange rate changes (900) (1,841) Change in cash, cash equivalents and restricted cash $ (13,211) $ (40,962) Operating Activities During the first six months of fiscal 2024, net cash provided by operating activities was $56.9 million, an increase of $25.9 million compared with the prior year, mainly due to a smaller reduction in customer deposits, reflecting a reduced backlog, partially offset by lower net income. Our cash provided by operating activities in fiscal 2024 was primarily attributable to net income, adjusted for non-cash items, partially offset by a $22.8 million decrease in other liabilities, mainly due to the payout of our fiscal 2023 incentive compensation awards during the first quarter of fiscal 2024, along with a $13.8 million decrease in customer deposits reflecting the reduced backlog. Investing Activities During the first six months of fiscal 2024, net cash used for investing activities was $25.3 million, a decrease of $18.8 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 $26.5 million compared with $40.4 million during the first six months 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 $60 to $70 million. We have no material contractual commitments outstanding for future capital expenditures. • Cash used for acquisitions was $7.3 million, primarily related to the acquisition of the Colorado Springs, Colorado and Lafayette, Louisiana retail businesses. • Proceeds from the sale of investments, net of investment purchases was $4.5 million. Financing Activities 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 October 28, 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 October 28, 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 six months of fiscal 2024, net cash used for financing activities was $43.9 million, an increase of $17.9 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 $20.0 million in the first six months of fiscal 2024 to repurchase 0.7 million shares. As of October 28, 2023, 6.6 million shares remained available 28 Table of Contents 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 $15.6 million. Our board of directors has sole authority to determine if and when we will declare future dividends and on what terms. We expect the board to continue declaring regular quarterly cash dividends for the foreseeable future, but it may discontinue doing so at any time. • 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 $0.9 million for the six months ended October 28, 2023. These changes impacted our cash balances held in Canada, Thailand, and the United Kingdom. Other During the second 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. Critical Accounting Policies 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 six months ended October 28, 2023. Recent Accounting Pronouncements See Note 1, Basis of Presentation, to the consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently adopted accounting standards and other new accounting standards. 29 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK During the first six months 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.