Flexsteel(FLXS) - 2024 Q3 - Quarterly Results

Executive Summary & Key Highlights Flexsteel Industries, Inc. reported strong fiscal third quarter 2024 results, demonstrating significant sales growth, gross margin expansion, and improved profitability, alongside strategic debt reduction Fiscal Third Quarter 2024 Key Results Flexsteel Industries, Inc. reported strong fiscal third quarter 2024 results, achieving 8.2% sales growth, significant gross margin expansion to 21.7%, and improved operating income and diluted EPS, alongside continued debt reduction | Metric | Q3 FY24 | Q3 FY23 | Change | % Change | | :-------------------------------- | :------ | :------ | :----- | :------- | | Net Sales (in millions) | $107.2 | $99.1 | $8.1 | 8.2% | | Sales Orders (in millions) | $111.5 | $99.3 | $12.2 | 12.3% | | Gross Margin | 21.7% | 18.8% | +2.9% | | | GAAP Operating Income (in millions) | $3.0 | $2.1 | $0.9 | 42.9% | | Adjusted Operating Income (in millions) | $5.6 | $2.1 | $3.5 | 166.7% | | GAAP Net Income per Diluted Share | $0.33 | $0.28 | $0.05 | 17.9% | | Adjusted Net Income per Diluted Share | $0.67 | $0.28 | $0.39 | 139.3% | - Cash flow from operations for the quarter was $7.2 million, contributing to $24.4 million year-to-date[4] - Debt repayments totaled $3.7 million for the quarter, representing a 21% reduction in borrowings under the line of credit[4] Management Commentary CEO Jerry Dittmer expressed satisfaction with the strong Q3 results, highlighting the company's successful execution of strategies, outperformance of the industry, and growth in top-line while improving profitability despite macroeconomic headwinds - The company is executing well operationally, leveraging benefits of operational efficiency, cost savings, and product life cycle management to expand gross margin and improve operating income[5] - Inventories were optimized and reduced by $8.6 million in the third quarter, which facilitated a 21% reduction in debt[5] - Continued investment in new product development and innovation, coupled with a focus on growth initiatives, contributed to outperformance[3] Operating Results for the Third Quarter Ended March 31, 2024 The company achieved robust Q3 FY24 operating results with increased net sales, substantial gross margin expansion, efficient SG&A management, and improved operating and net income Net Sales Performance Net sales for Q3 FY24 increased by 8.2% to $107.2 million, primarily driven by a 9.7% increase in home furnishings products sold through retail stores, while e-commerce sales saw a slight decrease due to softer consumer demand | Metric | Q3 FY24 (in millions) | Q3 FY23 (in millions) | Change (in millions) | % Change | | :----------------------- | :-------------------- | :-------------------- | :------------------- | :------- | | Net Sales | $107.2 | $99.1 | $8.1 | 8.2% | | Home Furnishings (Retail) | +$8.5 | | | 9.7% | | E-commerce | -$0.4 | | | (3.6%) | - The increase in home furnishings sales through retail stores was led by unit volume and product mix[6] - Lower sales in the e-commerce channel were attributed to softer consumer demand[6] Gross Margin Analysis Gross margin expanded significantly by 290 basis points to 21.7% in Q3 FY24, primarily due to fixed cost leverage on higher sales, supply chain cost savings, efficiency improvements, and effective product portfolio management | Metric | Q3 FY24 | Q3 FY23 | Change (bps) | | :----------- | :------ | :------ | :----------- | | Gross Margin | 21.7% | 18.8% | +290 | - The increase was primarily due to fixed cost leverage on higher sales, supply chain cost savings and efficiency improvements, and ongoing product portfolio management[7] Selling, General and Administrative (SG&A) Expenses SG&A expenses decreased as a percentage of net sales to 16.5% in Q3 FY24 from 16.7% in the prior year, driven by leverage on higher sales, partially offset by investments in growth initiatives and increased incentive compensation | Metric | Q3 FY24 | Q3 FY23 | | :------------------------- | :------ | :------ | | SG&A as % of Net Sales | 16.5% | 16.7% | - The decrease was due to leverage on higher sales, partially offset by investments in growth initiatives and higher incentive compensation[8] Operating Income and Net Income Both GAAP and Adjusted operating income and net income showed substantial improvements in Q3 FY24, with GAAP operating income rising to $3.0 million and adjusted operating income reaching $5.6 million. Net income per diluted share also increased, with adjusted EPS at $0.67 | Metric | Q3 FY24 (in millions) | Q3 FY23 (in millions) | | :--------------------------- | :-------------------- | :-------------------- | | GAAP Operating Income | $3.0 | $2.1 | | Adjusted Operating Income | $5.6 | $2.1 | | GAAP Net Income | $1.8 | $1.5 | | Adjusted Net Income | $3.6 | $1.5 | | GAAP Diluted EPS | $0.33 | $0.28 | | Adjusted Diluted EPS | $0.67 | $0.28 | - Income tax expense increased to $0.9 million (32.2% effective rate) in Q3 FY24 from $0.4 million (21.0%) in the prior year quarter[9] Strategic Initiatives & Financial Position Flexsteel continued its manufacturing network optimization with restructuring expenses for facility closure, while maintaining a healthy liquidity position and managing capital expenditures Manufacturing Network Optimization Update Flexsteel incurred $2.6 million in restructuring expenses during Q3 FY24, primarily for employee termination costs related to the closure of its Dublin, GA manufacturing facility, with an additional $0.4 to $0.5 million expected in Q4 FY24 to finalize the closure - Restructuring expense of $2.6 million was incurred in Q3 FY24, primarily for one-time employee termination costs[11] - An additional $0.4 to $0.5 million in restructuring expenses is expected during fiscal Q4 2024 to finalize the Dublin, GA facility closure[11] Liquidity and Capital Expenditures At the end of Q3 FY24, Flexsteel maintained a healthy liquidity position with a cash balance of $4.6 million, working capital of $96.2 million, and significant availability under its secured line of credit. Year-to-date capital expenditures totaled $4.4 million | Metric | Amount (in millions) | | :----------------------------------- | :------------------- | | Cash Balance | $4.6 | | Working Capital | $96.2 | | Secured Line of Credit Availability | $46.9 | - Capital expenditures for the nine months ended March 31, 2024, were $4.4 million[12] Financial Outlook Flexsteel provides updated guidance for Q4 FY24 and full year FY25, reiterating sales targets and adjusting operating margin expectations to reflect recent corporate changes Fourth Quarter and Full Year Fiscal 2024/2025 Guidance Flexsteel reiterates its sales guidance for Q4 FY24 and full year FY25, while increasing the low-end of its adjusted operating margin range for Q4 FY24. GAAP operating margin for Q4 FY24 has been updated to reflect non-cash costs related to the CEO transition | Metric | 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% | | Adjusted 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 | - The low-end range of expected adjusted operating margin for Q4 FY24 was increased from 5.0% to 5.2%[13] - GAAP operating margin in Q4 FY24 was updated to reflect non-cash costs related to the CEO transition and retirement[13] Corporate Updates & Company Information This section provides updates on investor resources, the CEO transition, conference call details, company background, and important forward-looking statement disclosures Investor Presentation An updated investor presentation, incorporating the fiscal third quarter 2024 operating results and financial outlook, has been made available on the Company's website - An updated investor presentation is available on the Company's website at https://ir.flexsteel.com/news-events/events-and-presentations[15](index=15&type=chunk) CEO Transition Flexsteel announced the appointment of Derek P. Schmidt as President and Chief Executive Officer, effective July 1, 2024, succeeding Jerald K. Dittmer, who will resign as CEO on June 30, 2024, and retire from Flexsteel on December 31, 2024 - Derek P. Schmidt has been appointed President and Chief Executive Officer, effective July 1, 2024[16] - Jerald K. Dittmer will resign as CEO on June 30, 2024, and retire from Flexsteel on December 31, 2024[16] Conference Call and Webcast Information Flexsteel hosted a conference call and audio webcast on April 30, 2024, to discuss the Q3 FY24 results, with replay options available through May 7, 2024, and an archived webcast online - A conference call and audio webcast were held on Tuesday, April 30, 2024, at 8:00 a.m. Central Time[17] - A replay of the conference call is available through May 7, 2024, via phone (877-344-7529 domestic / 412-317-0088 international, replay access code: 9414420)[22] - The live and archived webcast can be accessed at ir.flexsteel.com[22] About Flexsteel Flexsteel Industries, Inc. is a prominent U.S. manufacturer, importer, and marketer of residential furniture products, known for its wide range of offerings and a unique steel drop-in seat spring, distributed through e-commerce and a direct sales force - Flexsteel is one of the largest manufacturers, importers, and marketers of residential furniture products in the United States[19] - Product offerings include sofas, loveseats, chairs, reclining rocking chairs, sofa beds, tables, desks, dining furniture, bedroom furniture, and outdoor furniture[19] - A unique steel drop-in seat spring is a featured component in most upholstered furniture, from which the company's name is derived[19] Forward-Looking Statements The report contains forward-looking statements subject to various risks and uncertainties, including the cyclical nature of the furniture industry, supply chain disruptions, litigation, and general economic conditions, as detailed in the company's Form 10-K - Statements in the release that are not historical facts are considered "forward-looking statements" under the Private Securities Litigation Reform Act of 1995[20] - Important factors that could cause actual results to differ materially include the cyclical nature of the furniture industry, supply chain disruptions, litigation, restructurings, and general economic conditions[20] - Investors are cautioned that all forward-looking statements involve risk and uncertainty, with further details in the "Risk Factors" section of the most recent Annual Report on Form 10-K[20] Financial Statements (GAAP) This section presents the unaudited condensed consolidated balance sheets, statements of income and comprehensive income, and statements of cash flows for Flexsteel Condensed Consolidated Balance Sheets (Unaudited) Flexsteel's balance sheet as of March 31, 2024, shows a decrease in total assets, primarily driven by a reduction in inventories and line of credit borrowings, while shareholders' equity experienced a slight increase | Metric (in thousands) | March 31, 2024 | June 30, 2023 | Change | | :-------------------- | :------------- | :------------ | :----- | | Total Assets | $273,766 | $290,550 | ($16,784) | | Total Current Assets | $149,894 | $170,642 | ($20,748) | | Inventories | $96,589 | $122,076 | ($25,487) | | Total Liabilities | $128,502 | $148,929 | ($20,427) | | Line of Credit | $14,184 | $28,273 | ($14,089) | | Shareholders' Equity | $145,264 | $141,621 | $3,643 | Consolidated Statements of Income and Comprehensive Income (Unaudited) For the three months ended March 31, 2024, Flexsteel reported an 8.2% increase in net sales, leading to significant growth in gross profit, operating income, and net income, with diluted EPS rising to $0.33 | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :------------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Net sales | $107,219 | $99,052 | $8,167 | 8.2% | | Gross profit | $23,317 | $18,645 | $4,672 | 25.1% | | Operating income | $2,982 | $2,116 | $866 | 40.9% | | Net income | $1,803 | $1,475 | $328 | 22.2% | | Diluted EPS | $0.33 | $0.28 | $0.05 | 17.9% | | Weighted average diluted shares | 5,448 | 5,352 | 96 | 1.8% | | Metric (in thousands) | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | Change | % Change | | :------------------------- | :------------------------------- | :------------------------------- | :----- | :------- | | Net sales | $301,930 | $287,873 | $14,057 | 4.9% | | Gross profit | $63,677 | $49,832 | $13,845 | 27.8% | | Operating income | $9,484 | $6,306 | $3,178 | 50.4% | | Net income | $5,606 | $4,617 | $989 | 21.4% | | Diluted EPS | $1.04 | $0.85 | $0.19 | 22.4% | | Weighted average diluted shares | 5,410 | 5,427 | (17) | (0.3%) | - Restructuring expense of $2.6 million was recorded in Q3 FY24, impacting operating income[25] Condensed Consolidated Statements of Cash Flows (Unaudited) For the nine months ended March 31, 2024, net cash provided by operating activities was $24.4 million, a decrease from the prior year. Investing activities used $4.4 million, and financing activities used $18.8 million, primarily due to net payments on the line of credit | Metric (in thousands) | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | Change | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----- | | Net cash provided by operating activities | $24,361 | $30,462 | ($6,101) | | Net cash (used in) investing activities | ($4,361) | ($3,597) | ($764) | | Net cash (used in) financing activities | ($18,795) | ($26,640) | $7,845 | | Increase in cash and cash equivalents | $1,205 | $225 | $980 | | Cash and cash equivalents at end of period | $4,570 | $2,409 | $2,161 | - Operating activities generated $24.4 million, with adjustments including depreciation ($2.9M), stock-based compensation ($2.7M), and changes in operating assets and liabilities ($13.1M)[26] - Financing activities included $270.4 million in proceeds from the line of credit and $284.5 million in payments on the line of credit[26] Non-GAAP Financial Measures Reconciliation This section provides reconciliations of GAAP to adjusted non-GAAP financial measures, offering additional insights into the company's financial performance Non-GAAP Disclosure Overview Flexsteel provides non-GAAP financial measures, including adjusted net sales, operating income, net income, and diluted EPS, to offer investors additional insights into performance by excluding extraordinary or one-time items. These measures are not GAAP alternatives and may not be comparable to those of other companies - Non-GAAP measures are provided to give investors useful information for analyzing and comparing performance across periods, excluding extraordinary or one-time items[27] - These non-GAAP measures are not recognized under U.S. GAAP and do not purport to be alternatives to GAAP measures[27] - Due to varying calculation methods, these presentations may not be comparable to similarly titled measures of other companies[27] Reconciliation of GAAP Net Sales to Adjusted Net Sales Adjusted net sales for Q3 FY24 remained $107.2 million, while Q3 FY23 adjusted net sales were $97.6 million, reflecting a 9.9% growth after excluding a $1.5 million impact from ocean freight surcharge reductions in the prior year | Metric (in thousands) | March 31, 2024 | March 31, 2023 | Change | % Change | | :-------------------- | :------------- | :------------- | :----- | :------- | | Net Sales (GAAP) | $107,219 | $99,052 | $8,167 | 8.2% | | Freight Surcharges | $0 | ($1,454) | $1,454 | | | Adjusted Net Sales | $107,219 | $97,598 | $9,621 | 9.9% | Reconciliation of GAAP Operating Income to Adjusted Operating Income Adjusted operating income for Q3 FY24 was $5.6 million, significantly higher than the GAAP operating income of $3.0 million, primarily due to the exclusion of $2.6 million in restructuring expenses. For the nine months, adjusted operating income was $12.1 million compared to GAAP's $9.5 million | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Reported GAAP operating income | $2,982 | $2,116 | | Restructuring expense | $2,627 | $0 | | Adjusted operating income | $5,609 | $2,116 | | Metric (in thousands) | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | | :----------------------------- | :------------------------------- | :------------------------------- | | Reported GAAP operating income | $9,484 | $6,306 | | Other expense | $0 | $347 | | Environmental remediation | $0 | ($2,788) | | Restructuring expense | $2,627 | $0 | | Adjusted operating income | $12,111 | $3,865 | Reconciliation of GAAP Net Income to Adjusted Net Income Adjusted net income for Q3 FY24 was $3.6 million, compared to GAAP net income of $1.8 million, after accounting for restructuring expenses and their tax impact. For the nine months, adjusted net income was $7.4 million versus GAAP's $5.6 million | Metric (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------- | :-------------------------------- | :-------------------------------- | | Reported GAAP net income | $1,803 | $1,475 | | Restructuring expense | $2,627 | $0 | | Tax impact of adjustments | ($789) | $0 | | Adjusted net income | $3,641 | $1,475 | | Metric (in thousands) | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | | :------------------------- | :------------------------------- | :------------------------------- | | Reported GAAP net income | $5,606 | $4,617 | | Other expense | $0 | $347 | | Environmental remediation | $0 | ($2,788) | | Restructuring expense | $2,627 | $0 | | Tax impact of adjustments | ($790) | $561 | | Adjusted net income | $7,443 | $2,737 | Reconciliation of GAAP Diluted EPS to Adjusted Diluted EPS Adjusted diluted EPS for Q3 FY24 was $0.67, significantly higher than the GAAP diluted EPS of $0.33, after adjusting for restructuring expenses and their tax impact. For the nine months, adjusted diluted EPS was $1.38 compared to GAAP's $1.04 | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Reported GAAP diluted earnings per share | $0.33 | $0.28 | | Restructuring expense | $0.48 | $0.00 | | Tax impact of adjustments | ($0.14) | $0.00 | | Adjusted diluted earnings per share | $0.67 | $0.28 | | Metric | Nine Months Ended March 31, 2024 | Nine Months Ended March 31, 2023 | | :------------------------------- | :------------------------------- | :------------------------------- | | Reported GAAP diluted earnings per share | $1.04 | $0.85 | | Other expense | $0.00 | $0.06 | | Environmental remediation | $0.00 | ($0.51) | | Restructuring expense | $0.49 | $0.00 | | Tax impact of adjustments | ($0.15) | $0.10 | | Adjusted diluted earnings per share | $1.38 | $0.50 | Investor Contact This section provides contact information for investor relations inquiries at Flexsteel Industries, Inc. Investor Contact Information For investor inquiries, individuals can contact Michael Ressler at Flexsteel Industries, Inc. via phone or email - Investor Contact: Michael Ressler, Flexsteel Industries, Inc[33] - Phone: 563-585-8116[33] - Email: investors@flexsteel.com[33]