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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240429545954/en/
INVESTOR CONTACT: Michael Ressler, Flexsteel Industries, Inc.
563-585-8116 investors@flexsteel.com
Flexsteel Industries (NASDAQ:FLXS)
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Flexsteel Industries (NASDAQ:FLXS)
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