Dive Brief:

• La-Z-Boy will not return to full manufacturing capacity for several months, CEO Kurt Darrow said on a Wednesday earnings call.
• The furniture-maker, which does much of its production in the U.S., restarted production at its facilities at the end of April after shutting down in March and furloughing 70% of its workforce. The majority of those employees will be back to work by July, according to Darrow. La-Z-Boy subsidiary Joybird's production in Mexico began a phased reopening process in May due to government coronavirus mitigation restrictions. 
• The company closed its Newton, Mississippi upholstery and assembly plant earlier in June, laying off 300 workers. It will spread the work among three other U.S. facilities. La-Z-Boy laid off a total of 850 workers across the company globally, reducing its workforce by roughly 10%. On Wednesday's call, Darrow said the move would "strengthen and align La-Z-Boy to the new external environment." 

Dive Insight:

Darrow's account of La-Z-Boy's journey demonstrates how manufacturers could be financially strained through much of the year even if demand returns given the starkly different recovery timelines across the industry. 

"When you stop production at manufacturing sites, it happens pretty quickly and you can ratchet down pretty fast," Darrow said. 

In May, the company reached 50% production capacity compared to the previous May, after having been closes for weeks. By July the CEO expects to hit 80% productivity compared to 2019 levels. But with half of La-Z-Boy products made to order, the business' normal cadence is off since there is no backlog to draw from.

"While our plants are ramping up production on a weekly basis, we still have not reached prior-year volume levels or even critical sales levels to support our historically strong margins," Darrow said. 

La-Z-Boy's return to normal manufacturing efficiency, therefore, is likely to lag the reopening of retail. Chinese suppliers too, are experiencing a similar delay, which could hold up recovery further, Darrow said. 

"By far, the written pace of business is outpacing the ability of the factories to keep up because you just don't go from no production to 100% in five days," said Darrow. "There's going to be for quite a while, a few months, a pretty significant lag between the written business and the delivered business."

In announcing the Mississippi factory closure June 4, Darrow said the move was "appropriate to leverage the efficiencies we have created across the company and right size our business for the long term given the impact of COVID-19 on the state of the economy." Consolidating La-Z-Boy's production across fewer facilities may help with the efficiency loss he described. CFO Melinda Whittington said the savings from the layoffs and factory closure would drive the company's recovery.