The news: La-Z-Boy closed its upholstery assembly plant in San Luis Río Colorado, Mexico, at the end of its fiscal first quarter, according to its 10-Q. It is closing its Joybird plant in Tijuana by the end of the fiscal year. Both operations move into the company’s existing US plants.
The two closures cost $17.6 million in one-time charges this quarter, or 35 cents a share, the company said. The San Luis plant employed about 400 people, the company told Spanish-language station KEYT.
La-Z-Boy had three Mexico facilities at the end of its last fiscal year. It has two now, and will have just one — the cut-and-sew operation — once Tijuana closes.
Upholstered wood furniture built in Mexico has paid a 25% Section 232 duty on entry to the US since October 2025, and USMCA qualification does not exempt it. That rate rises to 30% on January 1, 2027, under the proclamation as amended.
What changed: Four years ago, La-Z-Boy was still adding assembly capacity in Mexico. It built the San Luis plant to serve western US when demand was running ahead of capacity, and opened it in February 2021 with 500 jobs planned. In October 2022, Sonora’s state government announced a second La-Z-Boy plant in the same industrial park, with headcount projected to reach 1,000, according to Mexican trade outlet Revista Porte.
Demand then fell short. Wholesale delivered sales fell 5% this quarter, excluding the casegoods business La-Z-Boy sold in May, and CEO Melinda Whittington described dealer orders as choppy through the summer. The company told local officials the closure was due to the economic slowdown in the US, the plant’s main market.
Capacity in the US had opened up as a result. Whittington said on the call the company is “consolidating two of our smallest upholstery plants into our established US network.” That still leaves “ample capacity in our US footprint to support future growth,” she added.
La-Z-Boy did not mention Section 232 in its release, its 10-Q, or on the call, even though the duty took effect between the expansion plan and the closure. It named only the newer Section 301 and Section 338 duties, calling them “incremental but manageable.” Its stated reason for leaving San Luis is demand.
The labor-intensive step stays in Mexico. About two-thirds of La-Z-Boy’s fabric and leather is imported raw into Mexico and cut and sewn into covers there, according to its annual report. More than 90% of the upholstered furniture La-Z-Boy sells in North America is then built at its US plants. The company closed one of its Mexican cut-and-sew sites, in Parras, in 2024 as it consolidated that work into fewer buildings.
That reverses the move La-Z-Boy made in 2019, when it shifted leather cut-and-sew work from Newton, Mississippi, to Mexico.
By the numbers: The San Luis closure cut wholesale operating margin by 390 basis points this quarter. The company is spending on two other supply chain projects at the same time.
The 390 basis points split into 100 basis points in cost of sales for severance, and 290 basis points in SG&A for writing down the plant’s assets.
Wholesale adjusted operating margin fell to 6.8% from 7.5%.
La-Z-Boy guided capital spending to $90 million to $110 million this fiscal year, up from $76 million last year. The distribution rebuild is the biggest line.
The distribution network still has nine DCs, unchanged since April. The remaining two of three planned hubs open by fiscal year-end, according to Whittington.
CFO Taylor Luebke said the company has “three big projects running in parallel,” the distribution rebuild plus the two plant consolidations. That is producing “incremental friction cost versus expectations” which will last the rest of the year, he said.
The competition: The two US upholstery makers with the most Mexico exposure are staying and paying the duty.
Flexsteel runs three leased plants in Juárez. Its 10-K says the majority of its seating “manufactured in Mexico remains subject to the 25% Section 232 tariffs,” scheduled to step up to 30%.
Flexsteel also holds a 12-year lease on a 508,000-square-foot plant in Mexicali that it signed in 2022 for pandemic-era demand and has never opened. It wrote down $14.1 million of that lease last year and is trying to sublease it.
Ethan Allen makes most of its furniture in Vermont, North Carolina, Mexico, and Honduras. CFO Matthew McNulty said on its fiscal fourth quarter call that the company’s tariff exposure “is concentrated on the 25% tariff that took effect last October” on upholstered wood products made in Mexico. He put the total at about $15 million a year.
The pattern: La-Z-Boy is the third manufacturer in 14 months to move finished-goods assembly from Mexico to the US, and the only furniture maker among them.
GM is moving gas-powered Blazer and Equinox assembly from Mexico to plants in Tennessee and Kansas. Toyota is shifting Tacoma output from Tijuana to San Antonio over four years.
Capacity is going the other way at the same time. GM Mexico said it will spend about $1 billion at Ramos Arizpe to build the Chevrolet Aveo and Groove there from 2027. Kia started building the EV3 at its Nuevo León plant last month.
The counter: Building at home means La-Z-Boy gets almost nothing back from the tariff refunds now reaching its import-heavy rivals.
Raymond James analyst Bobby Griffin asked Whittington whether the company’s pricing is harder to hold this season because it does not have “as much tariff refunds to throw back into promotions.”
Whittington agreed. The domestic footprint “positions us well in that tariffs are relatively a small factor to us,” she said. “But to your point, then tariff refunds are a small factor to us as well.”
The refunds are large elsewhere in the category. Flexsteel booked IEEPA refunds worth 780 basis points of gross margin in its June quarter. Ethan Allen received $5 million, worth 340 basis points of operating margin.
La-Z-Boy’s wholesale gross margin got 240 basis points from what it calls “favorable tariff impact,” a line that combines its refunds with price increases it took to cover tariffs and has kept in place. Luebke said the company’s refunds “are significantly less than others in our industry.”
Asked about promotions in the same exchange, Whittington said she is seeing “a little bit more deeper discounting” at the wholesale level in recent weeks.
What’s next: The Tijuana plant closes by the end of fiscal 2027, in April, and Joybird production moves into two La-Z-Boy plants. The remaining two distribution hubs open by the same date.
The Section 232 rate on upholstered wood furniture steps up to 30% on January 1, 2027, unless the administration changes it again. La-Z-Boy reports its fiscal second quarter in November.
