Flexsteel Industries, Inc. (NASDAQ: FLXS) (“Flexsteel” or the
“Company”), one of the largest manufacturers, importers, and
marketers of residential furniture products in the United States,
today reported second quarter fiscal 2024 results and announced
actions to optimize its North American manufacturing network.
Key Results for the Second Quarter Ended December 31,
2023
- Healthy sales growth of 7.5%. Net sales for the quarter of
$100.1 million compared to $93.1 million in the prior year
quarter.
- Robust sales orders of $104.8 million representing growth of
$12.8M, or 13.9%, compared to prior year quarter.
- Significant gross margin improvement to 21.9% compared to 17.0%
in the prior year quarter.
- Solid GAAP operating income of $4.6 million or 4.6% of net
sales compared to $3.8 million or 4.0% of net sales in the prior
year quarter.
- Non-GAAP operating income of $4.6 million or 4.6% of net sales
for the second quarter compared to $1.0 million or 1.0% of net
sales in the prior year quarter.
- GAAP net income per diluted share of $0.57 for the current
quarter compared to net income of $0.53 in the prior year quarter.
- Non-GAAP net income per diluted share of $0.57 for the quarter
compared to non-GAAP net income of $0.08 in the prior year
quarter.
- Strong cash flow generation: cash flow from operations of $18.9
million for the quarter driven by higher profits and a $15.6
million reduction in inventories.
- Strengthened balance sheet: debt repayments of $15.1 million
for the quarter, or a 46% reduction in borrowings under the line of
credit.
GAAP to non-GAAP reconciliations follow
the financial statements in this press release
Management Commentary
“I am very pleased with our second quarter results, which are
consistent with the preliminary results announced on January 11th,”
said Jerry Dittmer, CEO of Flexsteel Industries, Inc. “While
headwinds persist in our industry largely due to shifts in
discretionary consumer spending towards experiences and away from
home furnishings, we are competing well and growing both our top
and bottom line.”
Mr. Dittmer continues, “We delivered strong net sales of $100.1
million, or growth of 7.5%, which was slightly above our sales
guidance range of $94 to $100 million. Comparisons to prior year
continued to be adversely impacted by the elimination of ocean
freight surcharges in the prior year when ocean container delivery
costs were inflated. Excluding the approximately $3.5 million
impact from surcharge reductions, growth from unit volume and sales
mix was an impressive 11.7% in the quarter, reflecting our strong
sales execution. In addition, we are executing well operationally
and leveraging the combined benefits of continued productivity and
cost savings, pricing discipline, and ongoing product portfolio
management, to meaningfully expand gross margin and improve
operating income. Our operating margin of 4.6% in the second
quarter was a significant improvement compared to the first quarter
and prior year quarter, and above our guidance range of 2% to 4%.
Lastly, we are making strong progress in improving working capital
efficiency. Given improved demand stability and better supplier
lead times, we optimized and reduced our inventories by $15.6
million in the second quarter while continuing to provide
exceptional service levels to customers.”
Mr. Dittmer concludes, “Our strategies are working, and we’re
seeing the outcomes in our improved financial performance. I’m
encouraged by these second quarter results and excited about the
direction we are headed. We are executing well on multiple fronts,
but we are not done, and I am confident in our ability to continue
growing profitably, generating cash, and creating significant value
for our customers and shareholders long-term."
Operating Results for the Second Quarter Ended December 31,
2023
Net sales were $100.1 million for the second quarter compared to
net sales of $93.1 million in the prior year quarter, an increase
of $7.0 million, or 7.5%. The increase was driven by higher sales
of home furnishings products sold through retail stores of $9.9M
million, or 12.5%, led by unit volume and product mix. Sales of
products sold through e-commerce channels decreased by ($2.9)
million, or (20.3%), compared to the second quarter of the prior
year. Lower sales in the e-commerce channel were driven by softer
consumer demand and less promotional activity to improve overall
profitability.
Gross margin for the quarter ended December 31, 2023, was 21.9%,
compared to 17.0% for the prior-year quarter, an increase of 490
basis points (“bps”). The 490-bps increase was primarily due to
cost control, material cost savings initiatives, and fixed cost
leverage on higher sales volume.
Selling, general and administrative (SG&A) expenses
increased to 17.3% of net sales in the second quarter of fiscal
2024 compared with 16.0% of net sales in the prior year quarter.
The increase was mainly due to investment in growth initiatives and
higher incentive compensation.
Operating income for the quarter ended December 31, 2023, was
$4.6 million compared to $3.8 million in the prior-year quarter. On
an adjusted non-GAAP basis, operating income for the quarter ended
December 31, 2023 was $4.6 million compared to $1.0 million in the
prior year quarter.
Income tax expense was $1.0 million, or an effective rate of
25.5%, during the second quarter compared to tax expense of $0.6
million, or an effective rate of 17.2%, in the prior year
quarter.
Net income was $3.1 million, or $0.57 per diluted share, for the
quarter ended December 31, 2023, compared to net income of $2.9
million, or $0.53 per diluted share, in the prior year quarter. On
an adjusted non-GAAP basis, net income for the quarter ended
December 31, 2023 was $3.1 million or $0.57 per diluted share
compared to non-GAAP net income of $0.4 million or $0.08 per
diluted share in the prior year quarter.
Liquidity
The Company ended the quarter with a cash balance of $3.3
million and working capital (current assets less current
liabilities) of $100.5 million, and availability of approximately
$39.1 million under its secured line of credit.
Capital expenditures for the six months ended December 31, 2023,
were $3.1 million.
Manufacturing Network Optimization
As part of our ongoing commitment to improve the customer
experience, optimize service levels, and remain cost competitive in
the marketplace, the Company is closing its Dublin, Georgia
manufacturing plant. While difficult, this decision will improve
the customer experience through reduced lead times and reduced
handling damage and will enable the company to streamline
inventory, manufacturing, and logistics execution, while
maintaining exceptional quality across our full product offering.
Closure of the facility is expected to occur by the end of our
fiscal fourth quarter. As part of the transition, the company
expects to incur pre-tax restructuring and related expenses between
$2.5 million and $3.2 million. The one-time costs include
approximately $2.0 million to $2.5 million for employee separations
and $0.5 million to $0.7 million for other expenses directly
related to the closure. Substantially all of these expenses are
expected to result in future cash expenditures primarily during the
third and fourth quarters of fiscal year 2024. Once the closure is
fully executed, the company expects annualized savings in the range
of $4.0 million to $4.5 million. The Dublin, GA facility will be
listed for sale upon closure and the company anticipates a future
one-time gain in excess of the carrying value of the asset. The
Dublin facility supports less than 5% of annual sales and the
Company expects to retain the majority of these sales through this
transition.
Financial Outlook
While one-time costs associated with the Dublin closure will
adversely impact GAAP operating margin in the second half of fiscal
2024, the Company reiterates its full year fiscal 2025 guidance and
expects to achieve the previously released third and fourth quarter
fiscal 2024 guidance on an adjusted non-GAAP basis.
Third Quarter
Fiscal 2024
Fourth Quarter
Fiscal 2024
Full Year
Fiscal 2025
Sales
$101 - 106 million
$107 - 112 million
$416 - 432 million
Sales Growth (vs. Prior Year)
2% to 7%
1% to 6%
2% to 6%
GAAP Operating Margin
2.5% to 3.5%
4.0% to 5.0%
5.5% to 6.5%
Non-GAAP Operating Margin
4.5% to 5.5%
5.0% to 6.0%
5.5% to 6.5%
Free Cash Flow
$11 to 17 million (for 2nd half
Fiscal 2024)
$20 to 30 million
Line of Credit Borrowings
$12 to 17 million
$0 to 10 million
$0
Conference Call and Webcast
The Company will host a conference call and audio webcast with
analysts and investors on Tuesday, February 6, 2024, at 8:00 a.m.
Central Time to discuss the results and answer questions.
- Live conference call: 833-816-1123 (domestic) or 412-317-0710
(international)
- Conference call replay available through February 13, 2024:
877-344-7529 (domestic) or 412-317-0088 (international)
- Replay access code: 4637022
- Live and archived webcast: ir.flexsteel.com
To pre-register for the earnings conference call and avoid the
need to wait for a live operator, investors can visit
https://dpregister.com/sreg/10185617/fb60745fee and enter
their contact information. Investors will then be issued a
personalized phone number and pin to dial into the live conference
call.
About Flexsteel
Flexsteel Industries, Inc., and Subsidiaries (the “Company”) is
one of the largest manufacturers, importers, and marketers of
residential furniture products in the United States. Product
offerings include a wide variety of furniture such as sofas,
loveseats, chairs, reclining rocking chairs, swivel rockers, sofa
beds, convertible bedding units, occasional tables, desks, dining
tables and chairs, kitchen storage, bedroom furniture, and outdoor
furniture. A featured component in most of the upholstered
furniture is a unique steel drop-in seat spring from which the name
“Flexsteel” is derived. The Company distributes its products
throughout the United States through its e-commerce channel and
direct sales force.
Forward-Looking Statements
Statements, including those in this release, which are not
historical or current facts, are “forward-looking statements” made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. There are certain important factors
that could cause our results to differ materially from those
anticipated by some of the statements made herein. Investors are
cautioned that all forward-looking statements involve risk and
uncertainty. Some of the factors that could affect results are the
cyclical nature of the furniture industry, supply chain
disruptions, litigation, restructurings, the effectiveness of new
product introductions and distribution channels, the product mix of
sales, pricing pressures, the cost of raw materials and fuel,
changes in foreign currency values, retention and recruitment of
key employees, actions by governments including laws, regulations,
taxes and tariffs, the amount of sales generated and the profit
margins thereon, competition (both U.S. and foreign), credit
exposure with customers, participation in multi-employer pension
plans, disruptions or security breaches to business information
systems, the impact of any future pandemic, and general economic
conditions. For further information regarding these risks and
uncertainties, see the “Risk Factors” section in Item 1A of our
most recent Annual Report on Form 10-K.
For more information, visit our website at
http://www.flexsteel.com.
FLEXSTEEL INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED)
(in thousands)
December 31,
June 30,
2023
2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
3,312
$
3,365
Trade receivables, net
31,401
38,168
Inventories
105,238
122,076
Other
8,545
6,417
Assets held for sale
616
616
Total current assets
149,112
170,642
NONCURRENT ASSETS:
Property, plant and equipment, net
39,848
38,652
Operating lease right-of-use assets
65,341
68,294
Other assets
18,175
12,962
TOTAL ASSETS
$
272,476
$
290,550
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable - trade
$
19,825
$
24,745
Accrued liabilities
28,764
30,360
Total current liabilities
48,589
55,105
LONG-TERM LIABILITIES
Line of credit
17,898
28,273
Other liabilities
62,456
65,551
Total liabilities
128,943
148,929
SHAREHOLDERS' EQUITY
143,533
141,621
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
272,476
$
290,550
FLEXSTEEL INDUSTRIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except per share
data)
Three Months Ended
Six Months Ended
December 31,
December 31,
2023
2022
2023
2022
Net sales
$
100,108
$
93,137
$
194,711
$
188,821
Cost of goods sold
78,158
77,299
154,351
157,634
Gross profit
21,950
15,838
40,360
31,187
Selling, general and administrative
expenses
17,366
14,864
33,858
29,438
Environmental remediation
—
(2,788
)
—
(2,788
)
Other expense
—
—
—
347
Operating income
4,584
3,762
6,502
4,190
Interest expense
489
316
1,059
637
Other (income) expense
—
(1
)
—
1
Income before income taxes
4,095
3,447
5,443
3,552
Income tax provision
1,044
594
1,640
410
Net income and comprehensive income
$
3,051
$
2,853
$
3,803
$
3,142
Weighted average number of common shares
outstanding:
Basic
5,184
5,259
5,183
5,285
Diluted
5,324
5,339
5,360
5,436
Earnings per share of common stock:
Basic
$
0.59
$
0.54
$
0.73
$
0.59
Diluted
$
0.57
$
0.53
$
0.71
$
0.58
FLEXSTEEL INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (UNAUDITED)
(in thousands)
Six Months Ended
December 31,
2023
2022
OPERATING ACTIVITIES:
Net income
$
3,803
$
3,142
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation
1,899
2,277
Deferred income taxes
84
—
Stock-based compensation expense
1,845
1,670
Change in provision for losses on accounts
receivable
(140
)
(100
)
Loss on disposal of assets
34
—
Changes in operating assets and
liabilities
9,641
17,653
Net cash provided by operating
activities
17,166
24,642
INVESTING ACTIVITIES:
Capital expenditures
(3,058
)
(2,176
)
Net cash (used in) investing
activities
(3,058
)
(2,176
)
FINANCING ACTIVITIES:
Dividends paid
(1,671
)
(1,678
)
Treasury stock purchases
(1,427
)
(2,226
)
Proceeds from line of credit
180,524
166,933
Payments on line of credit
(190,899
)
(185,498
)
Shares withheld for tax payments on vested
restricted shares
(688
)
(407
)
Net cash (used in) financing
activities
(14,161
)
(22,876
)
(Decrease) in cash and cash
equivalents
(53
)
(410
)
Cash and cash equivalents at beginning of
the period
3,365
2,184
Cash and cash equivalents at end of the
period
$
3,312
$
1,774
NON-GAAP DISCLOSURE (UNAUDITED)
The Company is providing information regarding adjusted net
sales, adjusted operating income, adjusted net income, and adjusted
diluted earnings per share of common stock, which are not
recognized terms under U.S. Generally Accepted Accounting
Principles (“GAAP”) and do not purport to be alternatives to net
sales, operating income, net income, or diluted earnings per share
of common stock as a measure of operating performance. A
reconciliation of adjusted net sales, adjusted operating income,
adjusted net income, and adjusted diluted earnings per share of
common stock is provided below. Management believes the use of
these non-GAAP financial measures provides investors useful
information to analyze and compare performance across periods
excluding the items which are considered by management to be
extraordinary or one-time in nature. Because not all companies use
identical calculations, these presentations may not be comparable
to other similarly titled measures of other companies.
Reconciliation of GAAP net sales to non-GAAP adjusted net
sales:
The following table sets forth the reconciliation of the
Company's reported GAAP net sales to the calculation of adjusted
net sales for the three months ended December 31, 2023 and
2022:
Three Months Ended
December 31,
December 31,
(in thousands)
2023
2022
Change
% Change
Net Sales
$
100,108
$
93,137
$
6,971
7.5%
Freight Surcharges
$
—
$
(3,477
)
$
3,477
Adjusted Net Sales
$
100,108
$
89,660
$
10,448
11.7%
Reconciliation of GAAP operating income to non-GAAP adjusted
operating income:
The following table sets forth the reconciliation of the
Company’s reported GAAP operating income to the calculation of
non-GAAP adjusted operating income for the three and six months
ended December 31, 2023 and 2022:
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2023
2022
2023
2022
Reported GAAP operating income
$
4,584
$
3,762
$
6,502
$
4,190
Other expense
—
—
—
347
Environmental remediation
—
(2,788
)
—
(2,788
)
Non-GAAP operating income
$
4,584
974
$
6,502
$
1,749
Reconciliation of GAAP net income to non-GAAP adjusted net
income:
The following table sets forth the reconciliation of the
Company’s reported GAAP net income to the calculation of non-GAAP
adjusted net income for the three and six months ended December 31,
2023 and 2022:
Three Months Ended
Six Months Ended
December 31,
December 31,
(in thousands)
2023
2022
2023
2022
Reported GAAP net income
$
3,051
$
2,853
$
3,803
$
3,142
Other expense
—
—
—
347
Environmental remediation
—
(2,788
)
—
(2,788
)
Tax impact of the above adjustments(1)
—
375
—
281
Non-GAAP net income
$
3,051
$
440
$
3,803
$
982
(1) Effective tax rate of 13.5% and 11.5%
was used to calculate the three and six months ended December 31,
2022 respectively.
Reconciliation of GAAP diluted earnings per share of common
stock to non-GAAP adjusted diluted earnings per share of common
stock:
The following table sets forth the reconciliation of the
Company’s reported GAAP diluted earnings per share to the
calculation of non-GAAP adjusted diluted earnings per share for the
three and six months ended December 31, 2023 and 2022:
Three Months Ended
Six Months Ended
December 31,
December 31,
2023
2022
2023
2022
Reported GAAP diluted earnings per
share
$
0.57
$
0.53
$
0.71
$
0.58
Other expense
—
—
—
0.06
Environmental remediation
—
(0.52
)
—
(0.51
)
Tax impact of the above adjustments(1)
—
0.07
—
0.05
Non-GAAP diluted earnings per share
$
0.57
$
0.08
$
0.71
$
0.18
Note: The table above may not foot due to
rounding.
(1) Effective tax rate of 13.5% and 11.5%
was used to calculate the three and six months ended December 31,
2022 respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240205374414/en/
INVESTOR CONTACT: Michael Ressler, Flexsteel Industries, Inc.
563-585-8116 investors@flexsteel.com
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