What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-06-17 compared with 2023-06-20 · 99 added, 129 removed, 173 unchanged (57% of the section changed)

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Note that our 2024 and 2023 fiscal years included 52 weeks, whereas fiscal year 2022 included 53 weeks.

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

We are the leading global producer of reclining chairs and one of the largest manufacturer/distributors 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 .

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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 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

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.

For additional information about our business, refer to Part I, Item 1, Business of this report.

Century Vision Strategy

Our goal is to deliver value to our shareholders over the long term by executing Century Vision, our strategic plan for growth to our centennial year in 2027 and beyond, 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.

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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 leverage our consumer insights to develop and deliver

on-trend upholstered furniture, particularly in the motion and reclining categories.

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

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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

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 .

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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.

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 where we see opportunity for growth, or where we believe we have opportunities for further market penetration.

Over the last five years, as a result of opening new company-owned stores and acquiring independent La-Z-Boy Furniture Galleries ® stores, we increased our ownership percentage in this store network from 44% to 53%.

• 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, which include some of the best-known names in the industry, providing us the benefit of multi-channel distribution.

We believe there is significant growth potential for our consumer brands through these retail channels.

Profitably growing the Joybird brand

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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.

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 187 company-owned La-Z-Boy Furniture Galleries ® stores.

The Retail segment sells primarily upholstered furniture, in addition to some casegoods and other home furnishing 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 brands:

American Drew ® , Hammary ® and Kincaid ® .

The Wholesale segment also includes our international wholesale and manufacturing businesses.

Our Wholesale segment consists primarily of four operating segments:

La-Z-Boy, our largest operating segment, our England subsidiary, our casegoods operating segment that sells furniture under three brands (American Drew ® , Hammary ® , and Kincaid ® ), and our international operating segment which 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.

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.

• 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.

Joybird sells to the end consumer primarily online through its website, www.joybird.com and through small-format stores in key urban markets.

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

Results of Operations

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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 2023 Annual Report on Form 10-K, filed with the SEC on June 20, 2023, for an analysis of the fiscal year 2023 results as compared to fiscal year 2022.

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 2024 and Fiscal Year 2023

Supply Chain Optimization

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, which is expected to be completed by the end of the first quarter of fiscal 2025.

As a result of these actions, charges were recorded within the Wholesale segment in the second, third, and fourth quarters of fiscal 2024, totaling $4.3 million in cost of sales, primarily related to severance, and $4.2 million in SG&A expense for the accelerated depreciation and impairment of fixed assets.

La-Z-Boy Incorporated

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Consolidated sales in fiscal 2024 decreased $302.4 million, or 13%, 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.

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

Absent this backlog, sales were relatively flat in fiscal 2024 compared with fiscal 2023, as incremental sales from our Retail acquisitions and the addition of new major wholesale dealers were essentially offset by selective pricing taken on products and delivery services, along with promotional actions, to maintain competitiveness.

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.

Operating margin, which is calculated as operating income as a percentage of sales, decreased 160 basis points in fiscal 2024 compared with the prior year.

• Gross margin increased 200 basis points during fiscal 2024 compared with fiscal 2023.

◦ 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.

◦ 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.

◦ Lower input costs, led by reduced commodity prices and improved sourcing, drove an increase in gross margin in fiscal 2024 compared with the prior year.

◦ Gross margin further benefited from a favorable shift in product mix within our Retail segment toward higher margin products.

◦ Partially offsetting the benefits above, plant inefficiencies resulting from lower production volume and transition costs related to our supply chain optimization initiative in Mexico drove a decline in gross margin during fiscal 2024 compared with the prior year

◦ Gross margin further decreased from selective pricing and promotional actions taken in fiscal 2024 to maintain competitiveness.

• While selling, general, and administrative ("SG&A") expenses were down $22.4 million in fiscal 2024 compared with the prior year, SG&A expenses as a percentage of sales increased 360 basis points over the same period, primarily due to lower delivered sales relative to fixed costs.

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

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Operating margin 13.1% 16.5%

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.

The Retail segment's sales decreased $126.9 million, or 13%, in fiscal 2024 compared with fiscal 2023, primarily due to the adverse comparison to historic sales levels in fiscal 2023, which were fueled by the delivery of previously built backlog.

This decrease in sales was partially offset by a $25.2 million increase in sales related to our fiscal 2024 retail store acquisitions and the full-year impact of our fiscal 2023 retail store acquisitions.

Written same-store sales decreased 3% in fiscal 2024 compared with fiscal 2023, primarily due to softer industry-wide demand as a result of a challenging macroeconomic environment.

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.

The Retail segment's operating margin decreased 340 basis points in fiscal 2024 compared with fiscal 2023.

• Gross margin increased 120 basis points during fiscal 2024 compared with the prior year, primarily due to favorable shift in product mix towards higher margin products.

• While SG&A expenses decreased during fiscal 2024 compared with the prior year, SG&A expenses as a percentage of sales increased 460 basis points over the same period, primarily due to lower delivered sales relative to selling expenses and fixed costs, mainly occupancy expenses.

Wholesale Segment

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The Wholesale segment's sales decreased 14%, or $243.0 million, in fiscal 2024 compared with fiscal 2023.

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.

The decrease in sales primarily reflects a decline in delivered unit volume reflecting the absence of the significant backlog built from prior periods that delivered throughout fiscal 2023, combined with lower furniture demand across the entire industry due to a challenging macroeconomic environment.

To a lesser extent, sales also decreased in fiscal 2024 compared with fiscal 2023 as a result of selective pricing on products and delivery services, along with promotional actions, taken to maintain competitiveness.

Operating Margin

The Wholesale segment's operating margin decreased 80 basis points in fiscal 2023 compared with fiscal 2022.

The Wholesale segment's operating margin increased 10 basis points in fiscal 2024 compared with fiscal 2023.

• Gross margin increased 210 basis points during fiscal 2024 compared with fiscal 2023.

◦ 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.

◦ Lower input costs, led by reduced commodity prices and improved sourcing, drove a 390 basis point increase in gross margin during fiscal 2024 compared with the prior year.

◦ Partially offsetting the item above, plant inefficiencies resulting from lower production volume and transition costs related to our supply chain optimization initiative in Mexico led to a 90 basis point decrease in gross margin during fiscal 2024 compared with the prior year.

◦ Gross margin further decreased 90 basis points in fiscal 2024 compared with the prior year, from selective pricing and promotional actions taken to maintain competitiveness.

• SG&A expense as a percentage of sales increased 200 basis points during fiscal 2024 compared with fiscal 2023.

◦ 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.

◦ While SG&A expenses decreased in fiscal 2024 compared with the prior year, SG&A expenses as a percentage of sales increased, primarily due to reduced fixed cost leverage from lower delivered sales.

◦ Additionally, higher marketing expense in support of our Long Live the Lazy campaign launch drove a 60 basis point increase in SG&A expense as a percentage of sales in fiscal 2024 compared with the prior year.

Investments in this campaign support all La-Z-Boy branded products, including those sold through our Retail segment.

Corporate and Other

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Corporate and Other sales decreased $12.4 million in fiscal 2024 compared with fiscal 2023, primarily due to a $7.8 million, or 5% decrease from Joybird, which contributed $138.6 million in sales in fiscal 2024.

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.

Joybird's overall delivered volume declined in fiscal 2024, largely due to softer demand in the furniture and home furnishings industry experienced over the last year.

Written sales for Joybird were down 8% in fiscal 2024 compared with fiscal 2023, reflecting the industry-wide demand challenges noted above.

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.

Intercompany eliminations decreased in fiscal 2024 compared with fiscal 2023 due to lower sales from our Wholesale segment to our Retail segment, driven by lower 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.

Our Corporate and Other operating loss decreased $5.1 million in fiscal 2024 compared with fiscal 2023, primarily from improved Joybird operating performance.

This was partially offset by unfavorable intercompany inventory profit elimination adjustments, lower operating profit from our global trading company in Hong Kong and a comparative decrease in fiscal 2024 related to an $0.8 million gain recognized in fiscal 2023 to reduce the fair value of the Joybird contingent consideration liability based on our projections at that time.

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.

Interest Income

Interest income was $8.8 million higher in fiscal 2024 compared with fiscal 2023.

The increase in interest income was primarily driven by higher interest rates on higher cash balances.

Other Income (Expense), Net

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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.

Our effective income tax rate was 24.8% for fiscal 2024 and 26.2% for fiscal 2023.

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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.

During fiscal 2024, net cash provided by operating activities was $158.1 million, a decrease of $47.0 million compared with the prior year mainly due to lower net income and less favorable changes in working capital relative to the prior year, partially

offset by smaller reduction in customer deposits, reflecting a reduced backlog.

Our cash provided by operating activities in fiscal 2024 was primarily attributable to net income, adjusted for non-cash items and a $19.9 million decrease in inventory.

This was partially offset by a $22.7 million decrease in customer deposits, reflecting the reduced backlog, and a $16.8 million increase in receivables, reflecting higher sales from our Wholesale business to external dealers during the fourth quarter of fiscal 2024 compared with same period a year ago.

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.

During fiscal 2024, net cash used for investing activities was $81.6 million, an increase of $11.4 million c ompared with the prior year primarily due to an increase in La-Z-Boy Furniture Galleries ® acquisitions and lower proceeds from the sale of investments, net of investment purchases, all partially offset by lower capital expenditures.

Cash used for investing activities in fiscal 2024 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.

• Cash used for capital expenditures in the period was $53.6 million compared with $68.8 million during fiscal 2023, which is primarily related to upgrades at our manufacturing and distribution facilities, La-Z-Boy Furniture Galleries ® (new stores and remodels) and Joybird store projects.

We expect capital expenditures to be in the range of $70 to $80 million for fiscal 2025, primarily related to improvements and expansion of our Retail 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.

• Cash used for acquisitions was $39.4 million, related to the acquisition of the Bradenton and Sarasota, Florida, Illinois and Indiana, Colorado Springs, Colorado and Lafayette, Louisiana retail businesses.

• Proceeds from the sale of investments, net of investment purchases, was $6.5 million.

Financing Activities

On October 15, 2021, we entered into a new five-year $200 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.

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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 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.

During fiscal 2024, net cash used for financing activities was $81.2 million, an increase of $44.1 million compared with the prior year, primarily due to higher share repurchases, partially offset by proceeds from exercised stock options.

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

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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.

We expect the board to continue declaring regular quarterly cash dividends for the foreseeable future, but it may discontinue doing so at any time at the board's discretion.

• Proceeds from exercised stock options, net of stock issued and taxes withheld as part of our employee benefit plans, was $10.9 million.

• Cash paid for holdback payments made on prior-period acquisitions was $5.0 million for a guaranteed payment related to the acquisition of Joybird, which was the final payment related to this acquisition.

Exchange Rate Changes

Due to changes in exchange rates, our cash, cash equivalents, and restricted cash decreased by $0.9 million from the end of fiscal year 2023 to the end of fiscal year 2024.

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

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

Contractual Obligations

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We had purchase obligations of $181.7 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.

Open purchase orders also include contracts for indirect services, which are generally cancellable before services commence.

Our consolidated balance sheet as April 27, 2024 reflected a $1.2 million net liability for uncertain income tax positions.

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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.

The reacquired rights 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.

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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.

Goodwill arising from the acquisition of our wholesale business in the United Kingdom and Ireland and the acquisition of our manufacturing business in the United Kingdom is combined into the United Kingdom reporting unit.

The reporting unit for goodwill arising from the acquisition of Joybird is the Joybird operating segment.

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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.

During fiscal 2024, we performed the quantitative impairment test on two reporting units and determined that neither was impaired as discussed below.

Joybird Reporting Unit

The Joybird reporting unit, which has goodwill of $55.4 million at April 27, 2024, has an estimated fair value that exceeds is carrying value by approximately 6%.

We determined the fair value of this reporting unit by applying a combination of the income approach based on its future cash flows and the market approach based on the guideline public company method, weighted 75% and 25%, respectively.

The key assumptions that factored into the valuation under the income approach were the projections of revenue and operating income of the business, as well as the terminal growth rate, tax rate, and discount rate used to present value these future cash flows.

We performed a sensitivity analysis on the discount rate and terminal growth rate and using a range of reasonable inputs, the fair value of the Joybird reporting unit either exceeded its carrying value or did not exceed its carrying value by an immaterial amount, for each of the various scenarios analyzed.

The key assumption that factored into the valuation under the market approach was the market multiples applied to revenue.

United Kingdom Reporting Unit

The United Kingdom reporting unit, which has goodwill of $20.1 million at April 27, 2024, has an estimated fair value that exceeds is carrying value by approximately 28%.

We determined the fair value of this reporting unit using the income approach based on its future cash flows.

The key assumptions that factored into the valuation were the projections of revenue and operating income of the business, as well as the terminal growth rate, tax rate, and discount rate used to present value these future cash flows.

Refer to Note 7, Goodwill and Other Intangible Assets, for further information regarding our fiscal 2024 impairment testing.

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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 estimate future warranty claims on product sales based on sales volume and 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.

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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 measure stock-based compensation cost for both equity-based awards and liability-based awards on the grant date based on the awards' fair value and recognize expense over the vesting period.

For liability-based awards, 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.

If we grant options, 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

We base the risk-free rate on U.S.

Treasury issues with a term equal to the expected life assumed at the date of grant.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis