Financial Data and Key Metrics Changes - The third quarter net sales were 114million,representingagrowthof6.3107.2 million in the prior year quarter, marking the sixth consecutive quarter of year-over-year sales growth [29][10] - The adjusted operating margin was 7.3%, which is the second highest quarterly adjusted operating margin over the past seven years, and reflects an increase of 210 basis points from the prior year quarter [13][31] - The company generated 12.3millioninoperatingcashflowandendedthequarterwith22.6 million in cash [14][32] Business Line Data and Key Metrics Changes - Sales growth was driven by higher unit volumes and pricing from ocean freight surcharges, with significant success in new product introductions and share gains with large strategic accounts [10][29] - The company showcased 25 new product groups at the April Highpoint Market, expanding its Z-Clinr lineup and introducing new case goods products [12][11] Market Data and Key Metrics Changes - Vietnam production supports approximately 55% of revenue, while Mexican operations account for nearly 40% of sales, with current tariff impacts primarily affecting Vietnam [17][30] - The company has seen a slowdown in incoming orders from retailers due to tariff announcements, with a healthy backlog of 78.3millionatthestartofthefourthquarter[22][34]CompanyStrategyandDevelopmentDirection−Thecompanyremainsfocusedonexecutinggrowthstrategies,emphasizingnewproductintroductionsandenhancingcustomerexperienceaskeycomponentsofitssuccess[41][54]−ThecompanyisactivelyseekingalternativesourcingoptionsbeyondVietnamandMexicotomitigatetariffrisksandmaintaincompetitivepricing[62][63]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Themanagementexpressedconcernsaboutthepotentialimpactoftariffsonmargins,pricing,andsupplychaindesign,particularlyinlightoftheproposedU.S.reciprocaltariff[15][24]−Theoutlookfortheindustryismoderatelypessimisticduetoexternalchallengestoconsumerspending,withmanagementpreparedtonavigatemultipledemandscenarios[25][24]OtherImportantInformation−Thecompanyrecordeda14.1 million non-cash impairment charge related to its facility in Mexicali, Mexico, due to changes in U.S. furniture demand [30][31] - The company has implemented modest tariff surcharges on new orders to partially offset the impact of tariffs, although these do not completely offset the 10% tariff on Vietnam imports [20][57] Q&A Session Summary Question: Changes in order patterns during the March quarter - Management noted a typical seasonal slowdown in March, but year-over-year growth remained consistent until a significant slowdown in orders was observed following the April 2nd tariff announcement [50][52] Question: Goals for new product contributions to sales - Over half of current sales are derived from new products launched in the last couple of years, and the company remains committed to driving new product introductions regardless of external conditions [54][55] Question: Competitors' responses to tariff surcharges - Competitors have implemented varying surcharges based on their supply chains, and the company's guidance assumes the current 10% Vietnam tariff remains intact [57][58] Question: Sourcing from alternative countries - The company is actively seeking suppliers in other Southeast Asian countries and is prepared to optimize its supply chain based on trade negotiations [62][63] Question: Impact of tariffs on gross margins - Near-term tariffs are expected to be slightly dilutive to margins, with potential for greater impact if tariffs increase significantly [66][67]
Flexsteel(FLXS)2025-04-22 13:00