LA-Z-BOY INC

Results of Operations

Fiscal 2025 Second Quarter Compared with Fiscal 2024 Second Quarter

La-Z-Boy Incorporated

Sales

Consolidated sales increased $9.6 million, or 2%, and $23.5 million, or 2%, in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago. The increase during the second quarter was primarily driven by incremental sales resulting from our Retail acquisitions and higher delivered volume in our Joybird business. The first six months of fiscal 2025 further benefited from higher delivered volume to external customers, including the addition of new major wholesale dealers, within our Wholesale segment.

Operating margin, which is calculated as operating income as a percentage of sales, increased 80 basis points and 10 basis points in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago.

•Gross margin, which is calculated as gross profit as a percentage of sales, increased 70 basis points and 60 basis points in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago.

◦Changes in our consolidated mix led to a 60 basis point increase in gross margin in the second quarter of fiscal 2025 compared with the same period a year ago, driven by growth of our Retail segment, which has a higher gross margin than our Wholesale segment.

◦During the second quarter of fiscal 2024, we recognized $3.6 million of severance-related charges as part of our global supply chain optimization initiative, resulting in a comparative gross margin increase of 70 basis points and 40 basis points in second quarter and first six months of fiscal 2025, respectively.

◦Demand and macroeconomic challenges in our casegoods import business negatively impacted gross margin during the second quarter and first six months of fiscal 2025, compared with the same periods a year ago.

◦Lower input costs, led by reduced commodity prices and improved sourcing, drove an increase in gross margin during the first six months of fiscal 2025, compared with the same period a year ago. The second quarter of fiscal 2024 experienced favorable duty expense, more than offsetting the benefit of lower commodity costs in the second quarter of fiscal 2025, resulting in a comparative decrease in gross margin.

•SG&A expenses as a percentage of sales decreased 10 basis points and increased 50 basis points in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago.

◦Changes in our consolidated mix led to a 60 basis point increase in SG&A expense as a percentage of sales in the second quarter of fiscal 2025 compared with the same period a year ago, driven by growth of our Retail segment, which has a higher SG&A expense as a percentage of sales than our Wholesale segment.

◦As part of our global supply chain optimization initiative, 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 deprecation related to long-lived assets at our Ramos, Mexico facility. Together, these items resulted in a comparative 60 basis point and 20 basis point decrease in SG&A expense as a percentage of sales in the second quarter and first six months of fiscal 2025, respectively.

◦Reduced marketing expense relative to the prior year, in which we launched our Long Live the Lazy campaign, drove a decrease in SG&A expense as a percentage of sales in the second quarter and first six months of fiscal 2025.

◦SG&A expense as a percentage of sales increased in the second quarter of fiscal 2025 compared with the same period a year ago, due to fixed cost deleverage on lower sales in our international wholesale business due to a significant temporary customer disruption.

◦The remaining increase in SG&A expense as a percentage of sales in the first six months of fiscal 2025 was primarily due to increased selling expenses and fixed costs resulting from acquisitions of independently owned La-Z-Boy Furniture Galleries® and retail store expansion, both to support our long-term strategy of growing our Retail segment.

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

Retail Segment

Sales

The Retail segment’s sales increased $7.3 million, or 3%, and $1.4 million, or 0.3%, in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago. The increase in sales was primarily due to $12.0 million and $22.5 million of incremental sales during the second quarter and first six months of fiscal 2025, respectively, from our retail store acquisitions that occurred in fiscal 2024 and fiscal 2025, partially offset by a decline in delivered same-store sales.

Written same-store sales were down 1% and 2% in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago, 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 that have been open and company-owned for each comparable period.

The Retail segment's operating margin decreased 40 basis points and 200 basis points in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago.

•Gross margin increased 60 basis points and 40 basis points in the second quarter and first six months of 2025, respectively, compared with the same periods a year ago, primarily due to a favorable shift in product mix towards higher priced products.

•SG&A expenses as a percentage of sales increased 100 basis points and 240 basis points in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago, primarily due to increased selling expenses and fixed costs resulting from our acquisitions of independently owned La-Z-Boy Furniture Galleries® and retail store expansion, both to support our long-term strategy of growing our Retail segment.

Wholesale Segment

Sales

The Wholesale segment’s sales decreased $1.1 million, or 0.3%, and increased $16.4 million, or 2%, in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago. Over the same periods, intercompany sales from our Wholesale segment to our Retail segment increased 4% and 1%, respectively. Compared with the same periods a year ago, sales volume increased during the first six months of fiscal 2025, reflecting higher delivered volume to external customers, but declined during the second quarter of fiscal 2025, mainly due to a significant temporary customer disruption in our international wholesale business. Additionally, both the second quarter and first six months of fiscal 2025 benefited from a favorable shift in product mix toward higher price products.

The Wholesale segment's operating margin increased 80 basis points and 40 basis points in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago

•Gross margin decreased 20 basis points and was flat in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago.

◦Demand and macroeconomic challenges in our casegoods import business, drove a 70 basis point and 50 basis point decrease in gross margin during the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago.

◦Lower input costs, led by reduced commodity prices and improved sourcing drove a 60 basis point increase in gross margin during the first six months of fiscal 2025, compared with the same period a year ago. The second quarter of fiscal 2024 experienced favorable duty expense, more than offsetting the benefit of lower commodity costs in the second quarter of fiscal 2025, resulting in a comparative 50 basis point decrease in gross margin.

◦An unfavorable shift in channel mix towards external customers, which generally carry products with a lower gross margin than products sold to La-Z-Boy Furniture Galleries®, led to a 60 basis point decrease in gross margin during the first six months of fiscal 2025 compared with the same period a year ago.

◦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 comparative gross margin increase of 100 basis points and 50 basis points in second quarter and first six months of fiscal 2025, respectively.

•SG&A expense as a percentage of sales decreased 100 basis points and 40 basis points in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago.

◦As part of our global supply chain optimization initiative, 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 deprecation related to long-lived assets at our Ramos, Mexico facility. Together, these items resulted in a comparative 80 basis point and 30 basis point decrease in SG&A expense as a percentage of sales in the second quarter and first six months of fiscal 2025, respectively.

◦Reduced marketing expense relative to the prior year, in which we launched our Long Live the Lazy campaign, drove a 70 basis point and 60 basis point decrease in SG&A expense as a percentage of sales in the second quarter and first six months of fiscal 2025, respectively.

◦Partially offsetting the items above, SG&A expense as a percentage of sales increased 40 basis points and 30 basis points in the second quarter and first six months of fiscal 2025, respectively, from fixed cost deleverage on lower sales in our international wholesale business due to a significant temporary customer disruption.

Corporate and Other

Sales

Corporate and Other sales increased $5.9 million and $4.5 million in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago. The change in sales was primarily led by Joybird sales which increased $6.3 million to $38.7 million and $5.4 million to $73.2 million in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago, as higher delivered volume more than offset promotional activity. Written sales for Joybird increased 1% and 5% in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago.

Intercompany eliminations increased in the second quarter of fiscal 2025 compared with the same period a year ago due to higher sales from our Wholesale segment to our Retail segment, while intercompany eliminations decreased during the first six months of fiscal 2025 compared with the same period a year ago due to lower sales from our Wholesale segment to our Retail segment.

Operating Loss

Our Corporate and Other operating loss decreased $2.1 million and $8.1 million in the second quarter and first six months of fiscal 2025, respectively, compared with the same periods a year ago, primarily due to improved Joybird operating margin resulting in breakeven profit, partially offset by lower intercompany operating profit from our global trading company in Hong Kong. The first six months of fiscal 2025 also benefited from favorable intercompany inventory profit elimination adjustments relative to the same period a year ago.

Non-Operating Income (Expense)

Interest Income

Interest income was $1.1 million higher in the first six months of 2025, compared with the same period a year ago, primarily driven by higher interest rates.

Other Income, (Expense), Net

Other income (expense), net was $1.9 million and $2.5 million of expense in the second quarter and first six months of 2025, respectively, primarily due to exchange rate losses related to our Thailand manufacturing and wholesale businesses.

Income Taxes

Our effective tax rate was 26.3% and 25.9% for the second quarter and first six months of 2025, respectively, compared with 26.5% for both the second quarter and first six months of fiscal 2024. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes.