Flexsteel Industries, Inc. Reports Fiscal First Quarter 2021 Results and Announces New $30 Million Share Repurchase Program

Flexsteel Industries, Inc. (“Flexsteel” or the “Company”), one of the largest manufacturers, importers and online marketers of furniture products in the United States, reported first quarter 2021 financial results.

Highlights for the First Quarter Ended September 30, 2020

– Net sales increased 4.9% to $105.2 million compared to $100.3 million in the prior year quarter
– Organic net sales1, excluding discontinued Vehicle Seating and Hospitality product lines, increased by 17.9%
– Record level backlog of $89 million driven by strong year-over-year order growth of 60% in retail home furnishings
– Gross margin increased to 21.7% compared to 17.2% in the prior year quarter
– GAAP net income per diluted share of $0.49 compared to $1.17 in the prior year quarter
– Non-GAAP1 net income per diluted share of $0.80 compared to $0.00 in the prior year quarter
– Share repurchases of $9.0 million during the quarter

1GAAP to non-GAAP reconciliations follow the financial statements in this press release.

Management Commentary

“During the first quarter, we delivered solid financial results and saw increased demand for home furnishing products as consumers spend more time in the home and are shifting spending from travel and entertainment to home products,” said Jerry Dittmer, President and CEO of Flexsteel Industries.

“The strategic decisions made last quarter to accelerate our transformation and heighten focus on our core retail and e-commerce furniture businesses have made us stronger and more agile to meet surging demand with a more efficient network. The Company is financially strong with over $36 million of cash and no debt. We invested in increased inventories in the first quarter to support our customers and are expecting to receive a record number of inbound shipments in our second quarter to meet continued strong demand. Additionally, we recently added new production lines in both of our North American manufacturing facilities to expand capacity. In the first quarter, we returned the business to operating margins near historical peaks which we are committed to sustaining going forward. With profitability stabilized and sales momentum strong, we are now pivoting towards strategic investments to drive long-term profitable growth and improve our customers’ experience. While market conditions remain dynamic and could quickly change based on a multitude of factors, our team is competing well, and we are cautiously optimistic in our ability to continue profitably growing the business in 2021.”

Operating Results for the First Quarter Ended September 30, 2020

Net sales were $105.2 million for the first quarter compared to net sales of $100.3 million in the prior year quarter, an increase of 4.9%. The increase was driven by home furnishing products sold through retail stores of $11.4 million, or 14.8%, versus the prior year quarter and an increase in homestylesTM products sold through e-commerce channels of $4.6 million, or 39.7%, versus the prior year quarter. The increases in retail and e-commerce channels were partially offset by a decline of $11.1 million versus the prior year quarter, due to the Company’s exit of the Vehicle Seating and Hospitality product lines during the fourth quarter of fiscal 2020.

The Company reported net income of $3.9 million or $0.49 per diluted share for the quarter ended September 30, 2020, compared to net income of $9.6 million or $1.17 per diluted share in the prior year quarter. The reported net income included $1.4 million of pre-tax restructuring expense primarily for facility closures and employee termination costs as part of the previously announced comprehensive transformation program, a pre-tax gain of $0.7 million due to the sale of one of the Company’s Harrison, Arkansas facilities, and an additional $2.1 million tax expense due to the remeasurement of deferred tax assets and valuation allowance. Excluding these items (see attached non-GAAP disclosure), the Company reported adjusted net income of $6.3 million, or $0.80 per diluted share, as compared to adjusted net income of $0.0 million, or $0.00 per diluted share in the first quarter of fiscal year 2020.

Gross margin as a percent of net sales increased 450 basis points to 21.7% compared to 17.2% for the prior year quarter. The increase in gross margin as a percent of net sales was primarily due to structural cost reductions, operational efficiencies and fixed cost leverage due to higher sales volume as compared to the prior year quarter.

Selling, general and administrative (SG&A) expenses decreased $3.3 million or 18.9% to $14.2 million as compared to $17.5 million in the first quarter of fiscal 2020. As a percentage of net sales, SG&A was 13.5% in the first quarter of fiscal 2021 compared to 17.4% of net sales in the prior year quarter. The decrease in SG&A was due to reduced lower salaries and wages due to cost saving measures that began in the fourth quarter of fiscal 2020 and continued through the first quarter of fiscal 2021 as a result of COVID-19, coupled with decreased selling and travel expenses.

The Company reported tax expense of $4.1 million, or an effective rate of 51.3% during the first quarter compared to a $3.2 million tax expense, or an effective rate of 25.2% in the prior year quarter. The higher effective tax rate in the first quarter 2021 compared to the prior year quarter was primarily due to the Company’s expectation that it will not generate a net operating loss for tax purposes in the year ended June 30, 2021, that may be carried back up to five preceding taxable years via the Coronavirus Aid, Relief, and Economic Security Act. As a result, certain deferred tax assets were remeasured back to the current statutory rate of 21% while other deferred tax assets are no longer expected to be realizable and, as a result, the Company recorded additional tax expense of $2.1 million during the quarter, or an impact of $0.27 per diluted share. The effective tax rate for the remaining nine months of the fiscal year ending June 30, 2021 is expected to be in the range of 25% to 26%.

Restructuring and COVID-19 Update

During the quarter, the Company incurred $1.4 million of restructuring expense primarily due to employee severances and on-going facility and transition costs as part of the Company’s previously announced comprehensive transformation program. The Company expects to incur a total of approximately $2.5 million in restructuring expenses during fiscal 2021.

During the quarter, the Company completed the sale of one of its facilities located in Harrison, Arkansas, resulting in net proceeds of $0.7 million and a gain of $0.7 million.

As previously announced, the Company continued its reduced quarterly dividend of $0.05 per share during the quarter. A temporary 25% reduction in the salaries of the CEO and CFO/COO and a 50% cash compensation reduction for the Board of Directors ceased as of October 1, 2020. The Company has seen improvement in business conditions as retailers have reopened, however, there are supply chain challenges faced by the furniture industry due to labor shortages in Asia, limited availability of ocean containers, and inflationary pressures in key materials. Due to the uncertainties around COVID-19, the Company continues to evaluate the impact of COVID-19 and will take necessary actions to reduce spend and preserve cash.

Liquidity

The Company ended the quarter with a cash balance of $36.5 million and working capital (current assets less current liabilities) of $127.8 million, and no outstanding balance on its $25.0 million secured line of credit.

Capital expenditures for the three months ended September 30, 2020 were $0.4 million. For the full fiscal year 2021, capital expenditures are estimated to be in the range of $3.0 million to $4.0 million.

Share Repurchase Programs

On October 22, 2020, the Board of Directors approved a new repurchase program authorizing the Company to purchase up to an aggregate of $30 million of the Company’s common stock over the next three years. There is no guarantee as to the exact number or value of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management determines additional repurchases are not warranted. The timing and amount of share repurchases under the $30 million share repurchase program will depend on several factors, including the Company’s stock price performance, ongoing capital planning considerations, general market condition and applicable legal requirements.

As of October 26, 2020, the Company repurchased a total of 749,257 shares of the Company’s common stock at a total cost of $13.7 million during the calendar year 2020. The 749,257 shares were repurchased under both the Company’s $6.0 million and $8.0 million share repurchase programs.

For the full first quarter results, click here.

About Flexsteel

Flexsteel Industries, Inc. and Subsidiaries (the “Company”) is one of the largest manufacturers, importers and online marketers of residential furniture and products in the United States. Product offerings include a wide variety of upholstered furniture such as sofas, loveseats, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs and bedroom 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 dealer network.

Contact:

Derek Schmidt – Investor Relations – investors@flexsteel.com – (563) 585-8383

Source: Flexsteel Industries, Inc.