Flexsteel Industries, Inc. Reports Strong Fiscal Third Quarter 2024 Results

Flexsteel Industries, Inc. (“Flexsteel” or the “Company”), one of the largest manufacturers, importers, and marketers of residential furniture products in the United States, 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.

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.

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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.

Contact:

Michael Ressler – Investor Contact – investors@flexsteel.com – (563) 585-8116

Source: Flexsteel Industries, Inc.