La-Z-Boy(US:LZB)2020-11-17 21:23markdown PART I Financial Information (Unaudited) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of La-Z-Boy Incorporated, including the statement of income, comprehensive income, balance sheet, cash flows, and changes in equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [Consolidated Statement of Income](index=3&type=section&id=Consolidated%20Statement%20of%20Income) Quarter Ended 10/24/20 vs 10/26/19 (amounts in thousands, except per share data) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Sales | $459,120 | $447,212 | 2.7% | | Gross profit | $200,555 | $182,389 | 9.9% | | Operating income | $47,939 | $29,601 | 62.0% | | Net income attributable to La-Z-Boy Incorporated | $34,935 | $22,593 | 54.6% | | Diluted net income per share | $0.75 | $0.48 | 56.3% | Six Months Ended 10/24/20 vs 10/26/19 (amounts in thousands, except per share data) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :--------------------------------- | :------- | :------- | :--------- | | Sales | $744,578 | $860,845 | -13.5% | | Gross profit | $316,918 | $350,101 | -9.5% | | Operating income | $52,264 | $53,023 | -1.4% | | Net income attributable to La-Z-Boy Incorporated | $39,733 | $40,662 | -2.3% | | Diluted net income per share | $0.86 | $0.86 | 0.0% | [Consolidated Statement of Comprehensive Income](index=4&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) Quarter Ended 10/24/20 vs 10/26/19 (amounts in thousands) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :------------------------------------------------- | :------- | :------- | :--------- | | Net income | $35,304 | $22,904 | 54.1% | | Total other comprehensive income | $1,354 | $1,619 | -16.3% | | Comprehensive income attributable to La-Z-Boy Incorporated | $36,210 | $23,852 | 51.8% | Six Months Ended 10/24/20 vs 10/26/19 (amounts in thousands) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :------------------------------------------------- | :------- | :------- | :--------- | | Net income | $39,983 | $40,892 | -2.2% | | Total other comprehensive income | $3,572 | $2,386 | 49.7% | | Comprehensive income attributable to La-Z-Boy Incorporated | $42,728 | $42,202 | 1.2% | [Consolidated Balance Sheet](index=5&type=section&id=Consolidated%20Balance%20Sheet) As of 10/24/20 vs 4/25/20 (amounts in thousands) | Metric | 10/24/20 | 4/25/20 | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | | Total current assets | $796,402 | $626,326 | 27.1% | | Total assets | $1,650,343 | $1,434,889 | 15.0% | | Total current liabilities | $490,312 | $350,169 | 40.0% | | Total equity | $754,649 | $716,306 | 5.4% | [Consolidated Statement of Cash Flows](index=6&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Six Months Ended 10/24/20 vs 10/26/19 (amounts in thousands) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :-------------------------------------- | :------- | :------- | :--------- | | Net cash provided by operating activities | $195,710 | $53,702 | 264.4% | | Net cash used for investing activities | $(21,383) | $(32,345) | -33.9% | | Net cash used for financing activities | $(86,372) | $(34,842) | 147.9% | | Change in cash, cash equivalents and restricted cash | $89,899 | $(12,246) | N/A | [Consolidated Statement of Changes in Equity](index=7&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Equity) Equity at October 24, 2020 (amounts in thousands) | Component | Amount | | :----------------------------------- | :------- | | Common Shares | $46,113 | | Capital in Excess of Par Value | $326,182 | | Retained Earnings | $378,438 | | Accumulated Other Comprehensive Loss | $(3,957) | | Noncontrolling Interests | $7,873 | | **Total Equity** | **$754,649** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1. Basis of Presentation](index=8&type=section&id=Note%201.%20Basis%20of%20Presentation) This note outlines the basis for preparing the unaudited interim consolidated financial statements, confirming adherence to GAAP and consistency with the fiscal 2020 10-K, and details the company's COVID-19 response, including workforce reductions, facility adjustments, and revolving credit facility repayment - As part of its COVID-19 response, the company announced a business realignment plan on June 4, 2020, which included a **10%** global **workforce reduction** and the closure of its Newton, Mississippi upholstery manufacturing facility. Expenses of **$3.9 million** were incurred in the first six months of fiscal 2021 for this plan[27](index=27&type=chunk) - Due to **increased demand** outpacing production capacity, the company added manufacturing cells in Mexico, temporarily re-activated a portion of the Newton, Mississippi facility, and plans to open a new leased upholstery plant in San Luis Rio Colorado, Mexico[27](index=27&type=chunk) - The company **repaid the $75.0 million borrowed** from its revolving credit facility in the first and second quarters of fiscal 2021, which was initially borrowed in Q4 fiscal 2020 to strengthen liquidity during the COVID-19 pandemic[28](index=28&type=chunk) [Note 2. Acquisitions](index=9&type=section&id=Note%202.%20Acquisitions) This note details the asset acquisition of the Seattle, Washington business, which included six La-Z-Boy Furniture Galleries stores and a warehouse, as part of the company's strategy to grow its company-owned retail business - On September 14, 2020, La-Z-Boy acquired the Seattle, Washington business operating six La-Z-Boy Furniture Galleries stores and one warehouse for **$13.5 million**. A **$2.0 million** cash payment was made in Q2 fiscal 2021, with **$9.4 million** in future guaranteed payments[33](index=33&type=chunk) - The acquisition resulted in the recording of a **$2.2 million indefinite-lived intangible asset** for reacquired rights to operate the stores and **$12.9 million of goodwill** in the Retail segment, primarily for expected synergies[33](index=33&type=chunk) [Note 3. Restricted Cash](index=9&type=section&id=Note%203.%20Restricted%20Cash) This note provides a summary of cash, cash equivalents, and restricted cash, indicating that restricted cash is held as collateral for letters of credit Cash, Cash Equivalents and Restricted Cash (amounts in thousands) | Metric | 10/24/20 | 10/26/19 | | :-------------------------------------- | :------- | :------- | | Cash and cash equivalents | $350,949 | $117,569 | | Restricted cash | $2,478 | $1,972 | | **Total cash, cash equivalents and restricted cash** | **$353,427** | **$119,541** | [Note 4. Inventories](index=10&type=section&id=Note%204.%20Inventories) This note presents a detailed breakdown of the company's inventory, categorized by raw materials, work in process, and finished goods, and adjusted for the excess of FIFO over LIFO Inventory Summary (amounts in thousands) | Category | 10/24/20 | 4/25/20 | | :------------------ | :------- | :------- | | Raw materials | $91,742 | $92,174 | | Work in process | $17,759 | $14,064 | | Finished goods | $100,596 | $96,850 | | FIFO inventories | $210,097 | $203,088 | | Excess of FIFO over LIFO | $(21,445) | $(21,445) | | **Total inventories** | **$188,652** | **$181,643** | [Note 5. Goodwill and Other Intangible Assets](index=10&type=section&id=Note%205.%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides a roll-forward of goodwill and other intangible assets, detailing changes due to acquisitions and translation adjustments, and categorizing assets by segment and useful life Goodwill Roll-Forward (Six Months Ended 10/24/20, amounts in thousands) | Segment | Balance at 4/25/20 | Acquisitions | Translation Adjustment | Balance at 10/24/20 | | :---------------- | :----------------- | :----------- | :--------------------- | :------------------ | | Wholesale Segment | $11,630 | — | $636 | $12,266 | | Retail Segment | $93,941 | $12,931 | $250 | $107,122 | | Corporate and Other | $55,446 | — | — | $55,446 | | **Total Goodwill** | **$161,017** | **$12,931** | **$886** | **$174,834** | Other Intangible Assets Roll-Forward (Six Months Ended 10/24/20, amounts in thousands) | Category | Balance at 4/25/20 | Acquisitions | Amortization | Translation Adjustment | Balance at 10/24/20 | | :-------------------- | :----------------- | :----------- | :----------- | :--------------------- | :------------------ | | Indefinite Lived Trade Names | $1,155 | — | — | — | $1,155 | | Finite Lived Trade Name | $5,003 | — | $(399) | — | $4,604 | | Indefinite Lived Reacquired Rights | $19,996 | $2,182 | — | $187 | $22,365 | | Other Intangible Assets | $2,499 | — | $(110) | $134 | $2,523 | | **Total Other Intangible Assets** | **$28,653** | **$2,182** | **$(509)** | **$321** | **$30,647** | [Note 6. Investments](index=11&type=section&id=Note%206.%20Investments) This note summarizes the company's short-term and long-term investments, detailing their purpose (enhancing cash returns, funding compensation/retirement plans, and other investments) and providing a breakdown of unrealized gains/losses and fair value by investment type Investment Summary (amounts in thousands) | Category | 10/24/20 | 4/25/20 | | :-------------------------------- | :------- | :------- | | Short-term investments | $18,436 | $21,971 | | Long-term investments | $31,952 | $26,051 | | **Total investments** | **$50,388** | **$48,022** | Investments by Purpose (amounts in thousands) | Purpose | 10/24/20 | 4/25/20 | | :-------------------------------- | :------- | :------- | | Investments to enhance returns on cash | $27,224 | $28,622 | | Investments to fund compensation/retirement plans | $15,585 | $12,921 | | Other investments | $7,579 | $6,479 | | **Total investments** | **$50,388** | **$48,022** | Sales of Marketable Securities (Six Months Ended, amounts in thousands) | Metric | 10/24/20 | 10/26/19 | | :------------------ | :------- | :------- | | Proceeds from sales | $17,017 | $12,370 | | Gross realized gains | $310 | $187 | | Gross realized losses | $(26) | $(88) | [Note 7. Accrued Expenses and Other Current Liabilities](index=12&type=section&id=Note%207.%20Accrued%20Expenses) This note details the components of accrued expenses and other current liabilities, highlighting a significant increase in customer deposits and deferred revenue driven by higher sales in the Retail segment and Joybird Accrued Expenses and Other Current Liabilities (amounts in thousands) | Category | 10/24/20 | 4/25/20 | | :---------------------------------- | :------- | :------- | | Payroll and other compensation | $45,135 | $34,980 | | Accrued product warranty, current portion | $14,174 | $14,264 | | Customer deposits | $140,707 | $40,721 | | Deferred revenue | $67,882 | $17,086 | | Other current liabilities | $67,396 | $48,231 | | **Total** | **$335,294** | **$155,282** | - The **significant increase** in customer deposits and deferred revenue was primarily driven by **higher written sales** in the Retail segment and Joybird during the first six months of fiscal 2021[43](index=43&type=chunk) [Note 8. Product Warranties](index=12&type=section&id=Note%208.%20Product%20Warranties) This note outlines the company's accounting for product warranties, including the estimation methodology and a reconciliation of changes in the warranty liability, with the majority of the liability related to the Wholesale segment Product Warranty Liability Reconciliation (Six Months Ended, amounts in thousands) | Metric | 10/24/20 | 10/26/19 | | :-------------------------------- | :------- | :------- | | Balance as of the beginning of the period | $23,255 | $22,736 | | Accruals during the period | $9,134 | $11,425 | | Settlements during the period | $(9,451) | $(11,080) | | **Balance as of the end of the period** | **$22,938** | **$23,081** | - **Over 90% of the company's warranty liability** relates to its Wholesale segment, covering various product components for different durations[44](index=44&type=chunk) [Note 9. Stock-Based Compensation](index=13&type=section&id=Note%209.%20Stock-Based%20Compensation) This note summarizes the total stock-based compensation expense recognized and details the various types of awards granted, including stock options, restricted stock, restricted stock units, and performance shares, along with their valuation methodologies and vesting periods Total Stock-Based Compensation Expense (Six Months Ended, amounts in thousands) | Type | 10/24/20 | 10/26/19 | | :------------------------------ | :------- | :------- | | Equity-based awards expense | $6,167 | $4,707 | | Liability-based awards expense | $1,338 | $340 | | **Total stock-based compensation expense** | **$7,505** | **$5,047** | - During the first quarter of fiscal 2021, **315,584 stock options were granted** to employees with a fair value of **$10.06 per share**, and **120,385 shares of restricted stock were granted** with a weighted-average fair value of **$27.55 per share**[47](index=47&type=chunk)[48](index=48&type=chunk) - In the second quarter of fiscal 2021, **26,192 restricted stock units were granted** to non-employee directors, valued at **$32.08 per share**. Additionally, **168,719 performance-based shares were granted** in the first quarter, with payout dependent on financial performance (**50%**) and market-based conditions (**50%**)[49](index=49&type=chunk)[50](index=50&type=chunk) [Note 10. Accumulated Other Comprehensive Income (Loss)](index=14&type=section&id=Note%2010.%20Accumulated%20Other%20Comprehensive%20Loss) This note details the activity in accumulated other comprehensive income (loss), including translation adjustments, changes in fair value of cash flow hedges, marketable securities, and net pension amortization, as well as the components of non-controlling interest Accumulated Other Comprehensive Income (Loss) at October 24, 2020 (amounts in thousands) | Component | Amount | | :-------------------------------- | :------- | | Translation adjustment | $997 | | Change in fair value of cash flow hedge | $0 | | Unrealized gain (loss) on marketable securities | $426 | | Net pension amortization and net actuarial loss | $(5,380) | | **Total Accumulated Other Comprehensive Income (Loss)** | **$(3,957)** | Non-controlling Interest Components (Six Months Ended, amounts in thousands) | Metric | 10/24/20 | 10/26/19 | | :---------------------------------------- | :------- | :------- | | Balance as of the beginning of the period | $15,553 | $14,468 | | Net income | $250 | $230 | | Other comprehensive income | $577 | $845 | | Dividends distributed to joint venture minority partners | $(8,507) | — | | **Balance as of the end of the period** | **$7,873** | **$15,543** | [Note 11. Revenue Recognition](index=15&type=section&id=Note%2011.%20Revenue%20Recognition) This note describes the company's revenue recognition policies, including when control of products transfers to customers, the accounting for shipping and handling, and sales tax, and provides disaggregated revenue by product category and segment, and details contract assets and liabilities Consolidated Net Sales (amounts in thousands) | Period | 10/24/20 | 10/26/19 | Change (%) | | :-------------------------- | :------- | :------- | :--------- | | Quarter Ended | $459,120 | $447,212 | 2.7% | | Six Months Ended | $744,578 | $860,845 | -13.5% | Revenue Disaggregated by Product Category and Segment (Quarter Ended 10/24/20, amounts in thousands) | Product Category | Wholesale | Retail | Corporate and Other | Total | | :-------------------------- | :-------- | :------- | :------------------ | :-------- | | Motion Upholstery Furniture | $200,448 | $99,462 | $162 | $300,072 | | Stationary Upholstery Furniture | $92,679 | $30,980 | $36,424 | $160,083 | | Bedroom Furniture | $8,437 | $1,323 | $2,296 | $12,056 | | Dining Room Furniture | $6,874 | $2,799 | $844 | $10,517 | | Occasional Furniture | $12,541 | $5,351 | $806 | $18,698 | | Other | $22,037 | $22,360 | $(6,815) | $37,582 | | **Total Gross Revenue** | **$343,016** | **$162,275** | **$33,717** | **$539,008** | Contract Liabilities (amounts in thousands) | Category | 10/24/20 | 4/25/20 | | :---------------- | :------- | :------- | | Customer deposits | $140,707 | $40,721 | | Deferred revenue | $67,882 | $17,100 | | **Total Contract Liabilities** | **$208,589** | **$57,821** | [Note 12. Segment Information](index=17&type=section&id=Note%2012.%20Segment%20Information) This note details the company's reportable operating segments: Wholesale, Retail, and Corporate & Other, explaining the recent revision to aggregate former Upholstery and Casegoods segments into the new Wholesale segment and providing sales and operating income (loss) data by segment - Effective in Q1 fiscal 2021, the company revised its reportable operating segments by combining the former Upholstery and Casegoods segments into a new **Wholesale segment** to better align with business management and economic/customer channel similarities[66](index=66&type=chunk) Segment Sales (Quarter Ended, amounts in thousands) | Segment | 10/24/20 | 10/26/19 | Change (%) | | :------------------ | :------- | :------- | :--------- | | Wholesale segment sales | $343,016 | $350,245 | -2.1% | | Retail segment sales | $162,275 | $148,404 | 9.3% | | Corporate and Other sales | $33,717 | $24,311 | 38.7% | | **Consolidated sales** | **$459,120** | **$447,212** | **2.7%** | Segment Operating Income (Loss) (Quarter Ended, amounts in thousands) | Segment | 10/24/20 | 10/26/19 | Change (%) | | :-------------------------- | :------- | :------- | :--------- | | Wholesale segment | $41,683 | $34,285 | 21.6% | | Retail segment | $15,093 | $8,412 | 79.4% | | Corporate and Other | $(8,837) | $(13,096) | 32.5% (loss reduction) | | **Consolidated operating income** | **$47,939** | **$29,601** | **62.0%** | [Note 13. Income Taxes](index=18&type=section&id=Note%2013.%20Income%20Taxes) This note provides the effective tax rates for the second quarter and six months ended October 24, 2020, and October 26, 2019, explaining that the variation from the federal statutory rate is primarily due to state taxes Effective Tax Rate | Period | 10/24/20 | 10/26/19 | | :---------------- | :------- | :------- | | Second Quarter | 26.0% | 26.6% | | Six Months Ended | 25.3% | 24.6% | - The **effective tax rate** varies from the **21%** federal statutory rate primarily due to state taxes[69](index=69&type=chunk) [Note 14. Earnings per Share](index=18&type=section&id=Note%2014.%20Earnings%20per%20Share) This note reconciles the numerators and denominators used in computing basic and diluted earnings per share, detailing the impact of participating securities and stock options Earnings per Share (Quarter Ended, amounts in thousands, except per share data) | Metric | 10/24/20 | 10/26/19 | | :------------------------------------ | :------- | :------- | | Net income available to common Shareholders | $34,924 | $22,562 | | Basic weighted average common shares outstanding | 46,023 | 46,551 | | Diluted weighted average common shares outstanding | 46,323 | 46,879 | | **Basic EPS** | **$0.76** | **$0.48** | | **Diluted EPS** | **$0.75** | **$0.48** | Earnings per Share (Six Months Ended, amounts in thousands, except per share data) | Metric | 10/24/20 | 10/26/19 | | :------------------------------------ | :------- | :------- | | Net income available to common Shareholders | $39,711 | $40,590 | | Basic weighted average common shares outstanding | 45,966 | 46,686 | | Diluted weighted average common shares outstanding | 46,167 | 47,010 | | **Basic EPS** | **$0.86** | **$0.87** | | **Diluted EPS** | **$0.86** | **$0.86** | [Note 15. Fair Value Measurements](index=19&type=section&id=Note%2015.%20Fair%20Value%20Measurements) This note categorizes financial assets and liabilities into a three-level fair value hierarchy based on input observability, presenting fair value measurements for marketable securities, held-to-maturity investments, cost basis investments, and contingent consideration liability Fair Value Hierarchy for Assets (At 10/24/20, amounts in thousands) | Asset | Level 1 | Level 2 | Level 3 | NAV(1) | Total | | :------------------------ | :------ | :------ | :------ | :----- | :------ | | Marketable securities | — | $31,358 | — | $8,920 | $40,278 | | Held-to-maturity investments | $2,531 | — | — | — | $2,531 | | Cost basis investments | — | — | $7,579 | — | $7,579 | | **Total assets** | **$2,531** | **$31,358** | **$7,579** | **$8,920** | **$50,388** | Fair Value Hierarchy for Liabilities (At 10/24/20, amounts in thousands) | Liability | Level 1 | Level 2 | Level 3 | NAV(1) | Total | | :---------------------------- | :------ | :------ | :------ | :----- | :------ | | Contingent consideration liability | — | — | $2,500 | — | $2,500 | - Level 3 assets include **non-marketable preferred shares and warrants** of two privately held start-up companies, with an additional **$1.1 million** invested in one during the six months ended October 24, 2020. The Level 3 liability for **contingent consideration liability** from the Joybird acquisition is based on future revenues and earnings, determined using a **real options method**[81](index=81&type=chunk)[82](index=82&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results for the second quarter and first six months of fiscal 2021, including the impact of COVID-19, segment-specific performance, liquidity, and capital resources [Cautionary Note Regarding Forward-Looking Statements](index=21&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) - The report contains **forward-looking statements**, as defined by the Private Securities Litigation Reform Act of 1995, concerning expectations, projections, and trends related to operations, financial results, strategic initiatives, and the impact of the COVID-19 pandemic[84](index=84&type=chunk) - Readers are cautioned not to place undue reliance on these statements, as they are subject to various **unforeseeable risks and uncertainties**, many of which are beyond the company's control, including the ongoing impact of COVID-19[85](index=85&type=chunk) [Introduction](index=21&type=section&id=Introduction) - La-Z-Boy is a **leading global producer** of reclining chairs and the **second-largest manufacturer/distributor** of residential furniture in the U.S., operating a network of **355** La-Z-Boy Furniture Galleries stores (**159** company-owned) and **561** La-Z-Boy Comfort Studio locations[87](index=87&type=chunk)[89](index=89&type=chunk) - The company's **strategic initiatives for growth** include expanding branded distribution channels, growing company-owned retail business, leveraging its multi-channel distribution network, promoting on-trend and innovative products, and executing a multi-faceted online strategy, including the Joybird acquisition[90](index=90&type=chunk)[94](index=94&type=chunk) - In response to COVID-19, the company implemented **cash conservation measures** in Q4 fiscal 2020 (e.g., temporary closures, furloughs, salary reductions, dividend/repurchase suspension) and began **reinstating operations and compensation** in Q1/Q2 fiscal 2021, with the **quarterly dividend returning to its full amount** in Q3 fiscal 2021[95](index=95&type=chunk)[96](index=96&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) [Fiscal 2021 Second Quarter Compared with Fiscal 2020 Second Quarter](index=25&type=section&id=Fiscal%202021%20Second%20Quarter%20Compared%20with%20Fiscal%202020%20Second%20Quarter) This section provides an overview of the company's consolidated financial performance for the second quarter of fiscal 2021 compared to the prior year, highlighting increases in sales, operating income, and operating margin, driven by strong demand and operational efficiencies Consolidated Performance (Quarter Ended 10/24/20 vs 10/26/19, amounts in thousands, except percentages) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :--------------- | :------- | :------- | :--------- | | Sales | $459,120 | $447,212 | 2.7% | | Operating income | $47,939 | $29,601 | 62.0% | | Operating margin | 10.4% | 6.6% | +380 bps | - **Consolidated sales increased by $11.9 million** in Q2 fiscal 2021, primarily due to **strong delivered sales** from Joybird and the Retail segment, supported by **continued strong written order trends** and **increasing manufacturing production capacity**[99](index=99&type=chunk) - **Operating margin increased by 380 bps**, driven by a **290 bps increase in gross margin** (due to sales mix shift towards higher-margin segments and lower supply chain initiative costs) and a **100 bps decrease in SG&A expenses** as a percentage of sales (due to disciplined expense management, lower advertising, and reduced administrative/salary costs)[100](index=100&type=chunk)[102](index=102&type=chunk) [Wholesale Segment](index=27&type=section&id=Wholesale%20Segment) This section details the Wholesale segment's performance for the second quarter of fiscal 2021, showing a slight decrease in sales but a significant increase in operating income and margin, primarily due to improved gross margin and reduced SG&A expenses Wholesale Segment Performance (Quarter Ended 10/24/20 vs 10/26/19, amounts in thousands, except percentages) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :--------------- | :------- | :------- | :--------- | | Sales | $343,016 | $350,245 | -2.1% | | Operating income | $41,683 | $34,285 | 21.6% | | Operating margin | 12.2% | 9.8% | +240 bps | - **Wholesale segment sales decreased by $7.2 million** (**2.1%**) in Q2 fiscal 2021, primarily due to a temporary supply shortage of polyurethane foam, which led to **lower unit volume**[103](index=103&type=chunk) - **Operating margin increased by 240 bps**, driven by a **100 bps increase in gross margin** (due to lower supply chain initiative costs and efficiencies) and a **140 bps decrease in SG&A expenses** as a percentage of sales (due to disciplined expense management, lower advertising, and reduced administrative/salary costs)[104](index=104&type=chunk)[106](index=106&type=chunk) [Retail Segment](index=28&type=section&id=Retail%20Segment) This section highlights the Retail segment's strong performance in the second quarter of fiscal 2021, with increased sales, operating income, and operating margin, driven by same-store sales growth and contributions from newly acquired stores Retail Segment Performance (Quarter Ended 10/24/20 vs 10/26/19, amounts in thousands, except percentages) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :--------------- | :------- | :------- | :--------- | | Sales | $162,275 | $148,404 | 9.3% | | Operating income | $15,093 | $8,412 | 79.4% | | Operating margin | 9.3% | 5.7% | +360 bps | - **Retail segment sales increased by $13.9 million** (**9.3%**) in Q2 fiscal 2021, driven by a **6.3% increase in same-store delivered sales** (**$9.1 million**) and an additional **$3.5 million** from **newly acquired Seattle-based stores**[106](index=106&type=chunk) - **Written same-store sales were up 36.3%** in Q2 fiscal 2021, reflecting **increased demand for home furnishings** and **strong execution at the store level**. **Operating margin increased by 360 bps**, with **SG&A expenses** as a percentage of sales decreasing by **330 bps** due to **higher delivered sales relative to fixed costs** and **reduced advertising/administrative expenses**[106](index=106&type=chunk)[107](index=107&type=chunk)[111](index=111&type=chunk) [Corporate and Other](index=29&type=section&id=Corporate%20and%20Other) This section reviews the Corporate and Other segment's performance, noting a significant increase in sales and a reduction in operating loss, primarily driven by strong growth and improved profitability in the Joybird business Corporate and Other Performance (Quarter Ended 10/24/20 vs 10/26/19, amounts in thousands, except percentages) | Metric | 10/24/20 | 10/26/19 | Change (%) | | :--------------- | :------- | :------- | :--------- | | Sales | $33,717 | $24,311 | 38.7% | | Operating loss | $(8,837) | $(13,096) | 32.5% (loss reduction) | - Sales increased by **$9.4 million** (**38.7%**) in Q2 fiscal 2021, primarily due to an **$8.7 million** (**41.9%**) increase in **Joybird sales** to **$29.4 million**, driven by **strong written order trends** and increased online traffic[109](index=109&type=chunk) - The operating loss decreased by **$4.3 million** in Q2 fiscal 2021, largely due to improvements in the **Joybird business**, which **achieved profitability** for the quarter. This includes a **$2.5 million** pre-tax charge for the increase in fair value of the Joybird contingent consideration liability[111](index=111&type=chunk) [Non-Operating Income (Expense)](index=30&type=section&id=Non-Operating%20Income%20(Expense)) This section discusses changes in non-operating income and expense, noting that other income (expense), net was de minimis in Q2 fiscal 2021 compared to income in the prior year, and for the six-month period, income was primarily due to unrealized gains on investments - Other income (expense), net was de minimis in Q2 fiscal 2021, compared to **$1.4 million** of income in Q2 fiscal 2020, which was primarily due to the return of pension funds from a defined-benefit plan settlement[112](index=112&type=chunk) - For the first six months of fiscal 2021, other income (expense), net was **$1.5 million**, primarily driven by **unrealized gains on investments**[113](index=113&type=chunk) [Income Taxes](index=30&type=section&id=Income%20Taxes) This section provides the effective tax rates for the second quarter and six months ended October 24, 2020, and October 26, 2019, noting that state taxes are the primary reason for the variation from the federal statutory rate Effective Tax Rate | Period | 10/24/20 | 10/26/19 | | :---------------- | :------- | :------- | | Second Quarter | 26.0% | 26.6% | | Six Months Ended | 25.3% | 24.6% | - The **effective tax rate** varies from the **21%** federal statutory rate primarily due to state taxes[114](index=114&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's liquidity sources, including cash, investments, and credit facilities, and details cash flow activities, capital expenditures, and the impact of COVID-19 on financial flexibility and shareholder returns Cash and Investments (amounts in thousands) | Metric | 10/24/20 | 4/25/20 | | :-------------------------------------- | :------- | :------- | | Cash, cash equivalents and restricted cash | $353,427 | $263,528 | | Investments to enhance returns on cash | $27,224 | $28,622 | - The company **repaid the $75.0 million borrowed** from its revolving credit facility in Q1 and Q2 fiscal 2021, bringing the **outstanding balance to zero**. **Excess availability** under the **$150.0 million** credit commitment was **$62.8 million** at October 24, 2020[116](index=116&type=chunk) - **Capital expenditures** for the first six months of fiscal 2021 were **$15.4 million**, down from **$22.9 million** in the prior year. Expected **Capital expenditures** for fiscal 2021 are **$40-$45 million**, focusing on **plant upgrades, new production capacity in Mexico, technology, and retail store improvements**[117](index=117&type=chunk) - The company **reinstated its quarterly dividend** at **$0.07/share** in Q1 fiscal 2021, and then returned it to the full **$0.14/share** in Q3 fiscal 2021. The **share repurchase program remains suspended**, with **4.5 million shares available** under authorization[120](index=120&type=chunk)[121](index=121&type=chunk) Cash Flows (Six Months Ended, amounts in thousands) | Activity | 10/24/20 | 10/26/19 | | :-------------------------------------- | :------- | :------- | | Net cash provided by operating activities | $195,710 | $53,702 | | Net cash used for investing activities | $(21,383) | $(32,345) | | Net cash used for financing activities | $(86,372) | $(34,842) | | Exchange rate changes | $1,944 | $1,239 | | **Change in cash, cash equivalents and restricted cash** | **$89,899** | **$(12,246)** | [Critical Accounting Policies](index=32&type=section&id=Critical%20Accounting%20Policies) This section states that there were no material changes to the company's critical accounting policies during the six months ended October 24, 2020 - **No material changes to critical accounting policies** occurred during the six months ended October 24, 2020[128](index=128&type=chunk) [Recent Accounting Pronouncements](index=32&type=section&id=Recent%20Accounting%20Pronouncements) This section directs readers to Note 1, Basis of Presentation, for a discussion of recently adopted and new accounting standards - **Refer to Note 1, Basis of Presentation**, for a discussion of recently adopted accounting standards and other new accounting standards[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there were no material changes to the company's quantitative and qualitative disclosures about market risk during the first six months of fiscal 2021, referring to the previous Annual Report on Form 10-K for detailed information - **No material changes to the information about market risk** contained in **Item 7A of the Annual Report on Form 10-K** for the fiscal year ended April 25, 2020, during the first six months of fiscal 2021[130](index=130&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of October 24, 2020, based on an evaluation by management, including the CEO and CFO, and states that there were no material changes in internal control over financial reporting during the second quarter of fiscal 2021 - The company's **disclosure controls and procedures were evaluated and deemed effective** as of October 24, 2020, by management, including the **Chief Executive Officer** and **Chief Financial Officer**[131](index=131&type=chunk) - **No material changes in internal control over financial reporting** occurred during the second quarter of fiscal 2021[132](index=132&type=chunk) PART II Other Information [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) This section states that there have been no material changes to the company's risk factors during the first six months of fiscal 2021, referring to the Annual Report on Form 10-K for the full disclosure - **No material changes to the company's risk factors** were identified during the first six months of fiscal 2021[134](index=134&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports that no shares were repurchased under the publicly announced board-authorized plan during the second quarter of fiscal 2021, as the program was temporarily halted due to COVID-19, but 191 shares were purchased from employees to cover withholding tax obligations - **No shares were purchased under the board-authorized repurchase plan** in the second quarter of fiscal 2021, as the program was **temporarily halted due to the impact of COVID-19**[135](index=135&type=chunk) - As of October 24, 2020, **4.5 million shares remained available** for purchase under the existing authorization[135](index=135&type=chunk) - During the quarter ended October 24, 2020, **191 shares were purchased from employees** at an average price of **$28.44 per share** to satisfy withholding tax obligations upon the vesting of restricted shares[136](index=136&type=chunk) [Item 6. Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, XBRL instance documents, and the cover page - Exhibits include **Certifications of Chief Executive Officer (31.1)** and **Chief Financial Officer (31.2)** pursuant to **Rule 13a-14(a)**[138](index=138&type=chunk) - **Inline XBRL documents** (Instance, Schema, Calculation, Label, Presentation, Definition Linkbase Documents) are included as **Exhibits 101.INS through 101.DEF**[138](index=138&type=chunk) [Signature Page](index=32&type=section&id=Signature%20Page) This page confirms the due authorization and signing of the report on behalf of La-Z-Boy Incorporated by Lindsay A. Barnes, Vice President, Corporate Controller, Chief Accounting Officer, and Treasurer, on November 17, 2020 - The **report was signed on behalf of La-Z-Boy Incorporated** by **Lindsay A. Barnes, Vice President, Corporate Controller, Chief Accounting Officer and Treasurer**, on November 17, 2020[139](index=139&type=chunk)[140](index=140&type=chunk)