Flexsteel(FLXS) - 2024 Q1 - Quarterly Report

Part I – Financial Information Financial Statements Flexsteel reported Q1 FY2024 net sales of $94.6 million, a slight decrease, but net income increased to $0.8 million due to improved gross margin Consolidated Balance Sheets Total assets slightly decreased to $284.9 million, driven by lower trade receivables, while total liabilities also decreased to $143.5 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Total Current Assets | $165,155 | $170,642 | | Total Assets | $284,870 | $290,550 | | Total Current Liabilities | $46,834 | $55,105 | | Total Liabilities | $143,503 | $148,929 | | Total Shareholders' Equity | $141,367 | $141,621 | Consolidated Statements of Income and Comprehensive Income Net sales decreased by 1.1% to $94.6 million, but gross profit increased by 20% to $18.4 million, leading to a surge in net income to $752,000 Quarterly Income Statement Comparison (in thousands, except per share data) | Metric | Q1 2024 (ended Sep 30, 2023) | Q1 2023 (ended Sep 30, 2022) | Change | | :--- | :--- | :--- | :--- | | Net Sales | $94,603 | $95,684 | -1.1% | | Gross Profit | $18,410 | $15,349 | +20.0% | | Operating Income | $1,918 | $428 | +348.1% | | Net Income | $752 | $289 | +160.2% | | Diluted EPS | $0.14 | $0.05 | +180.0% | Consolidated Statements of Cash Flows Operating activities used $1.8 million in cash, a reversal from the prior year, primarily due to unfavorable working capital movements Cash Flow Summary (in thousands) | Activity | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,781) | $12,994 | | Net cash (used in) investing activities | $(1,355) | $(1,878) | | Net cash provided by (used in) financing activities | $2,744 | $(9,329) | | (Decrease) increase in cash and cash equivalents | $(392) | $1,787 | Notes to Consolidated Financial Statements Notes detail accounting policies, including new subleases for the Mexicali facility, $33.0 million outstanding on the credit line, and a 44.2% effective tax rate - The company entered into two subleases for its Mexicali manufacturing facility during and subsequent to the quarter, covering a total of 444,413 square feet. The right-of-use asset for this facility is $31.7 million as of September 30, 2023[26][27] - As of September 30, 2023, the company had $33.0 million outstanding under its credit agreement. The interest rate benchmark was transitioned from LIBOR to SOFR in May 2023, with an effective rate of 6.68% at quarter-end[33][34] - The effective tax rate for the quarter was 44.2%, differing from the 21% statutory rate primarily due to nondeductible stock compensation, state taxes, and the impact of foreign operations[35] - The environmental matter concerning the Lane Street Groundwater Superfund Site was resolved via a consent decree filed on October 24, 2022, with the company making a full payment of $9.8 million, partially reimbursed by insurance[60] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes sales decline to retail softness, offset by e-commerce growth, with gross margin improving due to cost control Quarterly Performance Summary | Metric | Q1 2024 (ended Sep 30, 2023) | Q1 2023 (ended Sep 30, 2022) | | :--- | :--- | :--- | | Net Sales | $94.6M | $95.7M | | Gross Margin % | 19.5% | 16.0% | | SG&A as % of Sales | 17.4% | 15.2% | | Operating Income % | 2.1% | 0.4% | | Net Income | $0.8M | $0.3M | - The decrease in net sales was driven by a $2.2 million (2.6%) decline in home furnishings products sold through retail stores, while sales through e-commerce channels grew by $1.1 million (10.7%)[67] - Gross margin increased by 350 basis points, primarily due to cost control and material cost savings initiatives[69] - SG&A expenses increased by $1.9 million (13.0%) due to investments in growth initiatives[70] - Net cash used by operating activities was $1.8 million, compared to $13.0 million provided by operating activities in the prior-year quarter, mainly due to changes in working capital accounts like trade receivables, inventories, and payables[75][76][77] Quantitative and Qualitative Disclosures About Market Risk The company identifies foreign currency fluctuations and variable interest rates on its $33.0 million credit line as primary market risks - The company is exposed to foreign currency risk, primarily from costs denominated in Mexican Pesos related to its operations in Mexico[89] - The company is exposed to interest rate risk on its line of credit, which had $33.0 million outstanding at a variable rate as of September 30, 2023[90] Controls and Procedures The CEO and CFO concluded that disclosure controls were effective as of September 30, 2023, with no material changes to internal controls - The CEO and CFO have concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[91] - No significant changes were made to the company's internal control over financial reporting during the quarter ended September 30, 2023[92] Part II – Other Information Risk Factors No material changes to previously disclosed risk factors were reported from the Annual Report on Form 10-K - There has been no material change in the risk factors from the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2023[97] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 23,413 shares for approximately $455,000 under its $30 million share repurchase program, with $3.3 million remaining Share Repurchase Activity (Q1 FY2024) | Period | Shares Purchased | Average Price Paid | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | Jul-23 | 8,176 | $19.31 | $157,800 | | Aug-23 | 1,899 | $19.67 | $37,350 | | Sep-23 | 13,338 | $19.45 | $259,420 | | Total | 23,413 | $19.42 | $454,570 | - As of September 30, 2023, approximately $3.3 million remained available for future repurchases under the authorized plan[99] Exhibits Exhibits filed include CEO and CFO certifications as required by Sarbanes-Oxley Act, along with XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, along with XBRL interactive data files[100]