Flexsteel Industries, Inc. Reports Fiscal Second Quarter 2021 Results

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

Highlights for the Second Quarter Ended December 31, 2020

– Net sales increased 15.7% to $119.1 million compared to $102.9 million in the prior year quarter

– Organic net sales(1), excluding discontinued Vehicle Seating and Hospitality product lines, increased by 25.5%

– Record retail home furnishings backlog of $101 million as of December 31, 2020, driven by strong year-over-year order growth of 49% in the second quarter

– Gross margin increased to 20.5% compared to 15.6% in the prior year quarter

– GAAP net income per diluted share of $1.13 compared to net loss of ($0.68) in the prior year quarter

– Non-GAAP(1) net income per diluted share of $0.79 compared to net loss of ($0.19) in the prior year quarter

– Share repurchases of $11.0 million during the quarter

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

Management Commentary

“Despite ongoing challenges from COVID-19, we executed well and delivered on strong demand for home furnishing products during our second quarter as we reported sales growth of 16% and organic sales growth of 26% compared to the prior year quarter, with growth in virtually all product categories,” said Jerry Dittmer, President and CEO of Flexsteel Industries.

“We enter the third quarter with strong sales momentum and a record high backlog. Global supply chain disruptions remain a significant near-term challenge due to constrained ocean container availability and material and labor shortages, but we are investing aggressively to expand our supply chain capabilities and inventories to best support our customers and the robust consumer demand for furniture. We recently signed a new building lease in Juarez, Mexico for an additional manufacturing plant which will add incremental manufacturing capacity in late third quarter. I remain confident in our ability to profitably grow the company in 2021 while accelerating strategic investments to drive long-term profitable growth and improve our customers’ experience.”

Operating Results for the Second Quarter Ended December 31, 2020

Net sales were $119.1 million for the first quarter compared to net sales of $102.9 million in the prior year quarter, an increase of 15.7%. The increase was driven by home furnishing products sold through retail stores of $22.4 million, or 28.8%, versus the prior year quarter and an increase in homestyles (TM) products sold through e-commerce channels of $1.8 million, or 11.0%, versus the prior year quarter. The increases in retail and e-commerce channels were partially offset by a decline of $8.0 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 $8.5 million or $1.13 per diluted share for the quarter ended December 31, 2020, compared to net loss of $5.4 million or ($0.68) per diluted share in the prior year quarter. The reported net income for the quarter ended December 31, 2020, included $1.3 million pre-tax bad debt expense due to the bankruptcy of a customer, $0.9 million pre-tax restructuring expense primarily for facility closures as part of the previously announced comprehensive transformation program, and a pre-tax gain of $5.2 million due to the sale of the Company’s Dubuque, Iowa and Lancaster, Pennsylvania facilities. Excluding these items (see attached non-GAAP disclosure), the Company reported adjusted net income of $5.9 million, or $0.79 per diluted share, as compared to adjusted net loss of $1.5 million, or ($0.19) per diluted share in the second quarter of fiscal year 2020.

Gross margin as a percent of net sales increased 490 basis points to 20.5% compared to 15.6% for the prior year quarter. The 490 basis points increase in gross margin was primarily due to structural cost reductions, operational efficiencies, fixed cost leverage due to higher sales volume as compared to the prior year quarter, and a decline the Company’s inventory reserve due to strong demand, which resulted in sales of previously reserved products.

Selling, general and administrative (“SG&A”) expenses increased $0.8 million or 4.5% to $18.9 million as compared to $18.1 million in the second quarter of fiscal 2020. As a percentage of net sales, SG&A was 15.9% in the second quarter of fiscal 2021 compared to 17.6% of net sales in the prior year quarter. SG&A expenses in the current year quarter included a $1.3 million bad debt expense due to a customer bankruptcy. The 170 bps decline compared to the prior year quarter was primarily due to cost leverage gained from higher sales, reductions in non-essential spending in response to COVID-19, and lower depreciation expense due to assets being held for sale, partially offset by a 110 bps increase related to a $1.3 million bad debt expense due to a customer bankruptcy during the quarter ended December 31, 2020.

The Company reported tax expense of $1.5 million, or an effective rate of 15.5%, during the second quarter compared to a $1.6 million tax benefit, or an effective rate of 22.8%, in the prior year quarter.

Restructuring and COVID-19 Update

During the quarter, the Company incurred $0.9 million of restructuring expense primarily due to 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 to $3.0 million in restructuring expenses during fiscal 2021.

During the quarter, the Company completed the sale of its facilities located in Dubuque, Iowa, and Lancaster, Pennsylvania, resulting in total net proceeds of $15.7 million and a total gain of $5.2 million.

The Company continued to see improvement in business conditions during the second quarter 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 $33.3 million and working capital (current assets less current liabilities) of $126.3 million, and no outstanding balance on its $25.0 million secured line of credit.

Capital expenditures for the six months ended December 31, 2020 were $0.7 million. For the full fiscal year 2021, capital expenditures are estimated to be in the range of $2.0 million to $3.0 million.

For the full second quarter results, click here.

About Flexsteel

Flexsteel Industries, Inc. and Subsidiaries (the “Company”) is one of the largest manufacturers, importers and online marketers of furniture 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 ecommerce channel and direct sales force.

Contact:

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

Source: Flexsteel Industries, Inc.