Flexsteel Industries, Inc. Reports Strong Preliminary Results for Second Quarter; Forecasts Continued Sales Growth and Robust Profit Improvement
- Healthy sales growth of 7.5%
- Significant gross margin improvement to 21.9%
- Solid GAAP operating income of $4.6 million
- Strong cash flow generation of $18.9 million for the quarter
- Debt repayments of $15.1 million resulted in a 46% reduction in borrowings under the line of credit
- None.
Insights
The preliminary financial results released by Flexsteel Industries demonstrate a company that is surpassing its performance metrics, showcasing a healthy sales growth of 7.5% and a significant gross margin improvement to 21.9%. These figures indicate effective management strategies in a challenging economic environment. The substantial reduction in inventories contributing to strong cash flow generation and the aggressive debt repayment strategy, reducing borrowings by 46%, reflect a robust balance sheet. This fiscal prudence is a positive signal to investors, suggesting a focus on long-term financial health over short-term gains.
Moreover, the company's ability to grow sales orders by 13.9% in a sector experiencing macroeconomic headwinds points to competitive strength and market share gains. The impressive growth from unit volume and sales mix, when excluding the impact of surcharge reductions, indicates strong sales execution and effective product portfolio management. Investors should note the company's guidance of continued operating margin improvements, which could suggest potential earnings growth and stock appreciation in the future. However, the reliance on these projections requires monitoring of the company's ability to maintain these margins in the face of potential economic shifts or market saturation.
Flexsteel's performance in the context of the broader furniture industry reveals a company that is adept at navigating through consumer spending shifts away from home furnishings. Their ability to achieve sales growth in a contracting market is indicative of their effective growth initiatives and market positioning. The company's strategic focus on operational execution, productivity and cost savings has allowed it to expand its gross margin more than the industry average, which is particularly notable given the recent removal of ocean freight surcharges that previously inflated costs.
Prospective and current investors should consider the company's commitment to improved working capital efficiency and service levels, as these are critical factors in maintaining customer satisfaction and competitive advantage. The furniture market's susceptibility to economic downturns means that Flexsteel's proactive measures to optimize inventory and improve supplier lead times are essential to its resilience and ability to capitalize on market recovery.
Flexsteel's report underscores a microeconomic success within a challenging macroeconomic landscape. The company's adeptness at improving profitability despite discretionary consumer spending shifts highlights a strong alignment of its business model with current economic trends. The reduction in debt and inventory levels in conjunction with an increase in cash flow signals a strategic emphasis on liquidity and solvency, which is crucial during periods of economic uncertainty.
While Flexsteel's operational improvements such as productivity gains and pricing discipline are commendable, it is essential to consider the broader economic conditions that may affect the company's future performance. Factors such as interest rate hikes, inflation and shifts in consumer confidence could impact discretionary spending on home furnishings. Thus, while the company's short-term outlook appears strong, the long-term perspective must be cautiously optimistic, factoring in economic indicators and consumer trends that could influence the industry.
Preliminary Fiscal 2024 Second Quarter Financial Results
The Company expects to report the following financial results for its second quarter ended December 31, 2023:
-
Healthy sales growth of
7.5% : Net sales for the quarter of$100.1 million $93.1 million -
Robust sales orders of
$104.8 million $12.8M 13.9% , compared to prior year quarter. -
Significant gross margin improvement to
21.9% compared to17.0% in the prior year quarter. -
Solid GAAP operating income of
$4.6 million 4.6% of net sales compared to$3.8 million 4.0% of net sales in the prior year quarter.-
Non-GAAP operating income of
$4.6 million 4.6% of net sales compared to$1.0 million 1.0% of net sales in the prior year quarter.
-
Non-GAAP operating income of
-
GAAP net income per diluted share of
$0.57 $0.53 -
Non-GAAP net income per diluted share of
$0.57 $0.08
-
Non-GAAP net income per diluted share of
-
Strong cash flow generation: cash flow from operations of
$18.9 million $15.6 million -
Strengthened balance sheet: Debt repayments of
$15.1 million 46% reduction in borrowings under the line of credit.
GAAP to non-GAAP reconciliations are provided at the end of this press release |
Management Commentary
“I am extremely pleased with our second quarter results. We are competing well, growing and gaining share, improving profitability, and generating cash to reduce debt and further strengthen our balance sheet,” said Jerry Dittmer, CEO of Flexsteel Industries, Inc. “While macroeconomic conditions combined with discretionary consumer spending shifts away from home furnishings continue to present headwinds to the industry, our growth initiatives are enabling us to profitably grow despite difficult conditions. As a result, we delivered strong net sales of
Mr. Dittmer continues, “In addition to our sales momentum, 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. As a result, our operating margin of
Mr. Dittmer concludes, “Our strategies are working, and we’re seeing the outcomes in our improved financial performance. While I’m encouraged by second quarter’s results, I’m more enthused about the results yet to come. Our organization is driven and executing well on multiple fronts which gives me confidence in our ability to continue to profitably grow and generate cash near-term, but more importantly, to generate significant value for our shareholders and customers long-term.”
Financial Outlook
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Third Quarter Fiscal 2024 |
Fourth Quarter Fiscal 2024 |
Full Year Fiscal 2025 |
Sales |
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Sales Growth (vs. Prior Year) |
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Operating Margin |
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Free Cash Flow |
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Line of Credit Borrowings |
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Management and Board of Directors Updates
Effective January 10, 2024, Michael Ressler was promoted to Chief Financial Officer, Treasurer and Secretary. Mr. Ressler has over seventeen years of experience with Flexsteel and has held a variety of cross functional leadership positions in accounting, finance, change management and manufacturing. Most recently, Mr. Ressler has served as Vice President, Manufacturing. In his new role as CFO, Mr. Ressler will retain his leadership responsibilities of the Company’s manufacturing operations.
“Mike’s leadership contributions have been instrumental in the Company’s transformation over the past several years,” stated Derek Schmidt, President. “Mike has a strong track record of delivering results, and I’m confident that his deep knowledge of Flexsteel and our industry combined with his extensive experience in finance and operations, will enable him to make a profound impact on the Company’s success as CFO in the years to come.”
Concurrent with Mr. Ressler’s promotion, Mr. Schmidt has been promoted to the position of President and appointed to Flexsteel’s Board of Directors. “Flexsteel is fortunate to have an executive with Derek’s capabilities. Since joining the Company in April 2020, his responsibilities have meaningfully expanded, and his promotion to President appropriately reflects his leadership responsibility for the Company’s operations and growth strategy,” noted Jerry Dittmer, CEO.
Unrelated to the management updates, Matt Kaness announced his resignation from the Board on January 9, 2024, effective immediately due to a need to focus on his primary professional commitments and to consider other opportunities. “Mr. Kaness has made significant contributions to Flexsteel as a member of the Board over the last four years. His leadership and expertise will be missed,” said Board Chairman Thomas M. Levine.
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.
The second quarter 2024 earnings release can be accessed at ir.flexsteel.com after market close on Monday, February 5, 2024.
About Flexsteel
Flexsteel Industries, Inc., and Subsidiaries (the “Company”) is one of the largest manufacturers, importers, and marketers of residential furniture products in
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
For more information, visit our website at http://www.flexsteel.com.
NON-GAAP DISCLOSURE (UNAUDITED)
The Company is providing information regarding adjusted net sales, adjusted operating income, and adjusted earnings per diluted share which are not recognized terms under
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:
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Three Months Ended |
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December 31, |
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December 31, |
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(in millions) |
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2023 |
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2022 |
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% Change |
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Net Sales |
|
$ |
100.1 |
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$ |
93.1 |
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Freight Surcharges |
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$ |
— |
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$ |
(3.5) |
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Adjusted Net Sales |
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$ |
100.1 |
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$ |
89.6 |
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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 months ended December 31, 2023, and 2022:
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Three Months Ended |
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December 31, |
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(in millions) |
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2023 |
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2022 |
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Reported GAAP operating income |
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$ |
4.6 |
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$ |
3.8 |
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Environmental remediation |
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— |
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(2.8) |
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Non-GAAP operating income |
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$ |
4.6 |
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$ |
1.0 |
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Reconciliation of GAAP earnings per share of common stock to non-GAAP adjusted earnings per share of common stock:
The following table sets forth the reconciliation of the Company’s reported GAAP earnings per share to the calculation of non-GAAP adjusted earnings per share for the three months ended December 31, 2023, and 2022:
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Three Months Ended |
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December 31, |
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(in millions) |
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2023 |
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2022 |
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Reported GAAP diluted earnings per share |
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$ |
0.57 |
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$ |
0.53 |
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Environmental remediation |
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— |
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(0.52) |
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Tax impact of the above adjustments(1) |
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— |
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0.07 |
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Non-GAAP diluted earnings per share |
$ |
0.57 |
$ |
0.08 |
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(1) |
Effective tax rate of |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240111667486/en/
INVESTOR CONTACT:
Michael Ressler, Flexsteel Industries, Inc.
563-585-8116
investors@flexsteel.com
Source: Flexsteel Industries, Inc.
FAQ
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