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Flexsteel Industries, Inc. Reports Strong Fiscal Third Quarter 2024 Results: 8% Sales Growth, Improved Operating Margin, Continued Debt Reduction

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 third quarter fiscal 2024 results.

Key Results for the Third Quarter Ended March 31, 2024

  • Strong sales growth of 8.2%. Net sales for the quarter of $107.2 million compared to $99.1 million in the prior year quarter.
  • Robust sales orders of $111.5 million representing growth of $12.2M, or 12.3%, compared to the prior year quarter.
  • Significant gross margin expansion to 21.7% compared to 18.8% in the prior year quarter.
  • GAAP operating income of $3.0 million or 2.8% of net sales compared to $2.1 million or 2.1% of net sales in the prior year quarter.
    • Adjusted operating income of $5.6 million or 5.2% of net sales for the third quarter compared to $2.1 million or 2.1% of net sales in the prior year quarter.
  • GAAP net income per diluted share of $0.33 for the current quarter compared to net income per diluted share of $0.28 in the prior year quarter.
    • Adjusted net income per diluted share of $0.67 for the quarter compared to adjusted net income per diluted share of $0.28 in the prior year quarter.
  • Cash flow from operations of $7.2 million for the quarter and $24.4 million year to date.
  • Debt repayments of $3.7 million for the quarter, or a 21% 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 extremely pleased with our third quarter results,” said Jerry Dittmer, CEO of Flexsteel Industries, Inc. “While macroeconomic conditions continue to present headwinds in our industry, we continue to execute on our strategies, are outperforming the industry, and are growing our top line while improving our profitability.”

Mr. Dittmer continues, “We delivered strong net sales of $107.2 million, or growth of 8.2%, which exceeded our sales guidance range of $101 to $106 million. In addition, 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 $1.5 million impact from surcharge reductions, growth from unit volume and sales mix was impressive at 9.9% in the quarter. This out-performance is a result of continued investment in new product development and innovation coupled with an intense focus on our growth initiatives. From a profitability perspective, we are executing well operationally and leveraging the combined benefits of operational efficiency, cost savings, and product life cycle management to meaningfully expand gross margin and improve operating income. Our GAAP operating margin for the quarter was 2.8% of net sales. Excluding the approximately $2.6 million in restructuring charges related to the closure of our Dublin, GA facility, our adjusted operating margin was a healthy 5.2% of net sales in the quarter and represented strong, sequential margin improvement versus the prior quarter. Lastly, we are making good progress in improving working capital efficiency and optimizing our manufacturing network. Given improved demand stability and better supplier lead times, we optimized and reduced our inventories by another $8.6 million in the third quarter which allowed us to reduce debt by an additional 21% in the quarter.”

Mr. Dittmer concludes, “I’m very encouraged by these third quarter results and excited about the direction we are headed. Our strategies are working, and I am confident in our ability to continue creating significant value for our customers and shareholders in both the near and long-term."

Operating Results for the Third Quarter Ended March 31, 2024

Net sales were $107.2 million for the third quarter compared to net sales of $99.1 million in the prior year quarter, an increase of $8.1 million, or 8.2%. The increase was driven by higher sales of home furnishings products sold through retail stores of $8.5M million, or 9.7%, led by unit volume and product mix. Sales of products sold through e-commerce channels decreased by ($0.4) million, or (3.6%), compared to the third quarter of the prior year. Lower sales in the e-commerce channel were driven by softer consumer demand.

Gross margin for the quarter ended March 31, 2024, was 21.7%, compared to 18.8% for the prior-year quarter, an increase of 290 basis points (“bps”). The 290-bps increase was primarily due to fixed cost leverage on higher sales, supply chain cost savings and efficiency improvements, and ongoing product portfolio management.

Selling, general and administrative (SG&A) expenses decreased as a percentage of net sales to 16.5% of net sales in the third quarter of fiscal 2024 compared with 16.7% of net sales in the prior year quarter. The decrease was due to leverage on higher sales partially offset by investments in growth initiatives and higher incentive compensation.

Operating income for the quarter ended March 31, 2024, was $3.0 million compared to $2.1 million in the prior-year quarter. On an adjusted basis, operating income for the quarter ended March 31, 2024, was $5.6 million compared to $2.1 million in the prior year quarter.

Income tax expense was $0.9 million, or an effective rate of 32.2%, during the third quarter compared to tax expense of $0.4 million, or an effective rate of 21.0%, in the prior year quarter.

Net income was $1.8 million, or $0.33 per diluted share, for the quarter ended March 31, 2024, compared to net income of $1.5 million, or $0.28 per diluted share, in the prior year quarter. On an adjusted basis, net income for the quarter ended March 31, 2024, was $3.6 million or $0.67 per diluted share compared to adjusted net income of $1.5 million or $0.28 per diluted share in the prior year quarter.

Manufacturing Network Optimization Update

During the quarter, the Company incurred $2.6 million of restructuring expense primarily due to one-time employee termination costs as part of the Company’s previously announced closure of our Dublin, GA manufacturing facility. The Company expects to incur $0.4 to $0.5 million in restructuring expenses during fiscal fourth quarter 2024 to finalize the closure.

Liquidity

The Company ended the quarter with a cash balance of $4.6 million, working capital (current assets less current liabilities) of $96.2 million, and availability of approximately $46.9 million under its secured line of credit.

Capital expenditures for the nine months ended March 31, 2024, were $4.4 million.

Financial Outlook

For the fourth quarter fiscal 2024, the Company reiterates previously disclosed sales guidance. The Company is increasing the low-end range of expected non-GAAP operating margin from 5.0% to 5.2%. GAAP operating margin in the fourth quarter has been updated to reflect non-cash costs related to the revaluation of equity awards associated with our CEO transition and retirement. The Company reiterates its full year fiscal 2025 guidance.

 

Fourth Quarter

Fiscal 2024

Full Year

Fiscal 2025

Sales

$107 - 112 million

$416 - 432 million

Sales Growth (vs. Prior Year)

1% to 6%

2% to 6%

GAAP Operating Margin

3.5% to 4.3%

5.5% to 6.5%

Non-GAAP Operating Margin

5.2% to 6.0%

5.5% to 6.5%

Free Cash Flow

$5 to 11 million

$20 to 30 million

Line of Credit Borrowings

$4 to 10 million

$0

Investor Presentation

An updated investor presentation has been posted on the Company's website at https://ir.flexsteel.com/news-events/events-and-presentations which incorporates third quarter fiscal 2024 operating results as well as the financial outlook noted above.

CEO Transition

Flexsteel Industries has announced the appointment of Derek P. Schmidt to the position of President and Chief Executive Officer effective July 1, 2024. Mr. Schmidt will succeed Jerald K. Dittmer who has announced his resignation from the position of Chief Executive Officer effective June 30, 2024, and retirement from Flexsteel on December 31, 2024. Further discussion of this matter can be found in the press release announcement, which can be accessed on the Company's website at https://ir.flexsteel.com/news-events/press-releases.

Conference Call and Webcast

The Company will host a conference call and audio webcast with analysts and investors on Tuesday, April 30, 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 May 7, 2024: 877-344-7529 (domestic) or 412-317-0088 (international)
  • Replay access code: 9414420
  • 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/10188314/fc4913477a 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)

 

 

 

March 31,

 

June 30,

 

 

2024

 

2023

ASSETS

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents

 

$

4,570

 

$

3,365

Trade receivables, net

 

 

38,884

 

 

38,168

Inventories

 

 

96,589

 

 

122,076

Other

 

 

9,235

 

 

6,417

Assets held for sale

 

 

616

 

 

616

Total current assets

 

 

149,894

 

 

170,642

 

 

 

 

 

NONCURRENT ASSETS:

 

 

 

 

Property, plant and equipment, net

 

 

39,963

 

 

38,652

Operating lease right-of-use assets

 

 

63,398

 

 

68,294

Other assets

 

 

20,511

 

 

12,962

 

 

 

 

 

TOTAL ASSETS

 

$

273,766

 

$

290,550

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Accounts payable - trade

 

$

21,655

 

$

24,745

Accrued liabilities

 

 

32,082

 

 

30,360

Total current liabilities

 

 

53,737

 

 

55,105

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

Line of credit

 

 

14,184

 

 

28,273

Other liabilities

 

 

60,581

 

 

65,551

Total liabilities

 

 

128,502

 

 

148,929

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

145,264

 

 

141,621

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

273,766

 

$

290,550

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

March 31,

 

March 31,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

 

$

107,219

 

 

$

99,052

 

 

$

301,930

 

 

$

287,873

 

Cost of goods sold

 

 

83,902

 

 

 

80,407

 

 

 

238,253

 

 

 

238,041

 

Gross profit

 

 

23,317

 

 

 

18,645

 

 

 

63,677

 

 

 

49,832

 

Selling, general and administrative expenses

 

 

17,708

 

 

 

16,529

 

 

 

51,566

 

 

 

45,967

 

Environmental remediation

 

 

 

 

 

 

 

 

 

 

 

(2,788

)

Restructuring expense

 

 

2,627

 

 

 

 

 

 

2,627

 

 

 

 

Other expense

 

 

 

 

 

 

 

 

 

 

 

347

 

Operating income

 

 

2,982

 

 

 

2,116

 

 

 

9,484

 

 

 

6,306

 

Interest expense

 

 

336

 

 

 

260

 

 

 

1,395

 

 

 

897

 

Other (income)

 

 

(14

)

 

 

(12

)

 

 

(14

)

 

 

(11

)

Income before income taxes

 

 

2,660

 

 

 

1,868

 

 

 

8,103

 

 

 

5,420

 

Income tax provision

 

 

857

 

 

 

393

 

 

 

2,497

 

 

 

803

 

Net income and comprehensive income

 

$

1,803

 

 

$

1,475

 

 

$

5,606

 

 

$

4,617

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

5,154

 

 

 

5,179

 

 

 

5,175

 

 

 

5,249

 

Diluted

 

 

5,448

 

 

 

5,352

 

 

 

5,410

 

 

 

5,427

 

Earnings per share of common stock:

 

 

 

 

 

 

 

 

Basic

 

$

0.35

 

 

$

0.28

 

 

$

1.08

 

 

$

0.88

 

Diluted

 

$

0.33

 

 

$

0.28

 

 

$

1.04

 

 

$

0.85

 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

Nine Months Ended

 

 

March 31,

 

 

2024

 

2023

OPERATING ACTIVITIES:

 

 

 

 

Net income

 

$

5,606

 

 

$

4,617

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation

 

 

2,940

 

 

 

3,483

 

Deferred income taxes

 

 

74

 

 

 

 

Stock-based compensation expense

 

 

2,722

 

 

 

2,472

 

Change in provision for losses on accounts receivable

 

 

(149

)

 

 

(149

)

Loss on disposal of assets

 

 

60

 

 

 

 

Changes in operating assets and liabilities

 

 

13,108

 

 

 

20,039

 

Net cash provided by operating activities

 

 

24,361

 

 

 

30,462

 

INVESTING ACTIVITIES:

 

 

 

 

Capital expenditures

 

 

(4,361

)

 

 

(3,597

)

Net cash (used in) investing activities

 

 

(4,361

)

 

 

(3,597

)

FINANCING ACTIVITIES:

 

 

 

 

Dividends paid

 

 

(2,446

)

 

 

(3,241

)

Treasury stock purchases

 

 

(1,660

)

 

 

(2,968

)

Proceeds from line of credit

 

 

270,421

 

 

 

254,482

 

Payments on line of credit

 

 

(284,510

)

 

 

(274,494

)

Proceeds from issuance of common stock

 

 

88

 

 

 

 

Shares withheld for tax payments on vested restricted shares

 

 

(688

)

 

 

(419

)

Net cash (used in) financing activities

 

 

(18,795

)

 

 

(26,640

)

Increase in cash and cash equivalents

 

 

1,205

 

 

 

225

 

Cash and cash equivalents at beginning of the period

 

 

3,365

 

 

 

2,184

 

Cash and cash equivalents at end of the period

 

$

4,570

 

 

$

2,409

 

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 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 March 31, 2024 and 2023:

 

 

Three Months Ended

 

 

 

 

March 31,

 

March 31,

 

 

 

 

(in thousands)

 

2024

 

2023

 

Change

 

% Change

Net Sales

 

$

107,219

 

$

99,052

 

 

$

8,167

 

8.2%

Freight Surcharges

 

$

 

$

(1,454

)

 

$

1,454

 

 

Adjusted Net Sales

 

$

107,219

 

$

97,598

 

 

$

9,621

 

9.9%

Reconciliation of GAAP operating income to adjusted operating income:

The following table sets forth the reconciliation of the Company’s reported GAAP operating income to the calculation of adjusted operating income for the three and nine months ended March 31, 2024 and 2023:

 

 

Three Months Ended

 

Nine Months Ended

 

 

March 31,

 

March 31,

(in thousands)

 

2024

 

2023

 

2024

 

2023

Reported GAAP operating income

 

$

2,982

 

$

2,116

 

$

9,484

 

$

6,306

 

Other expense

 

 

 

 

 

 

 

 

347

 

Environmental remediation

 

 

 

 

 

 

 

 

(2,788

)

Restructuring expense

 

 

2,627

 

 

 

 

2,627

 

 

 

Adjusted operating income

 

$

5,609

 

 

2,116

 

$

12,111

 

$

3,865

 

Reconciliation of GAAP net income to adjusted net income:

The following table sets forth the reconciliation of the Company’s reported GAAP net income to the calculation of adjusted net income for the three and nine months ended March 31, 2024 and 2023:

 

 

Three Months Ended

 

Nine Months Ended

 

 

March 31,

 

March 31,

(in thousands)

 

2024

 

2023

 

2024

 

2023

Reported GAAP net income

 

$

1,803

 

 

$

1,475

 

$

5,606

 

 

$

4,617

 

Other expense

 

 

 

 

 

 

 

 

 

 

347

 

Environmental remediation

 

 

 

 

 

 

 

 

 

 

(2,788

)

Restructuring expense

 

 

2,627

 

 

 

 

 

2,627

 

 

 

 

Tax impact of the above adjustments(1)

 

 

(789

)

 

 

 

 

(790

)

 

 

561

 

Adjusted net income

 

$

3,641

 

 

$

1,475

 

$

7,443

 

 

$

2,737

 

(1) Effective tax rate of 30.0% and 30.1% was used to calculate the three and nine months ended March 31, 2024 respectively. There were no non-GAAP adjustments for the three months ended March 31, 2023. Effective tax rate of 23.0% was used to calculate the nine months ended March 31, 2023.

Reconciliation of GAAP diluted earnings per share of common stock to 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 adjusted diluted earnings per share for the three and nine months ended March 31, 2024 and 2023:

 

 

Three Months Ended

 

Nine Months Ended

 

 

March 31,

 

March 31,

 

 

2024

 

2023

 

2024

 

2023

Reported GAAP diluted earnings per share

 

$

0.33

 

 

$

0.28

 

$

1.04

 

 

$

0.85

 

Other expense

 

 

 

 

 

 

 

 

 

 

0.06

 

Environmental remediation

 

 

 

 

 

 

 

 

 

 

(0.51

)

Restructuring expense

 

 

0.48

 

 

 

 

 

0.49

 

 

 

 

Tax impact of the above adjustments(1)

 

 

(0.14

)

 

 

 

 

(0.15

)

 

 

0.10

 

Adjusted diluted earnings per share

 

$

0.67

 

 

$

0.28

 

$

1.38

 

 

$

0.50

 

Note: The table above may not foot due to rounding.

(1) Effective tax rate of 30.0% and 30.1% was used to calculate the three and nine months ended March 31, 2024 respectively. There were no non-GAAP adjustments for the three months ended March 31, 2023. Effective tax rate of 23.0% was used to calculate the nine months ended March 31, 2023.

 

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