Flexsteel(US:FLXS)2023-11-04 15:27Financial Data and Key Metrics Changes - The company reported net sales of $94.6 million for the first quarter, reflecting a year-over-year sales growth of 6.8% when excluding the impact of ocean freight surcharges [60][55] - Operating income was $1.9 million, representing 2% of sales, which is an improvement from $0.4 million in the same quarter of the prior year [50][60] - Gross margin improved to 19.5% compared to 16% in the same quarter of the prior year, with expectations for further improvement in the second quarter [50][10] Business Line Data and Key Metrics Changes - The sourced soft seating business saw a unit growth of 13.7% year-over-year, while manufactured stationary products grew by 3.7% [20] - E-commerce sales grew by 10.7% in the quarter, driven by increased revenue from big box distribution, notably with Costco [8] Market Data and Key Metrics Changes - The company anticipates that the elimination of ocean freight surcharges will negatively impact year-over-year sales comparisons by approximately $4 million in the second quarter [61][55] - The company is facing headwinds from high interest rates, rising fuel prices, and other economic factors, which are affecting consumer spending [56][82] Company Strategy and Development Direction - The company is focused on innovation and expanding its product lines, including the introduction of new products at the October Market [84][59] - The strategy includes leveraging growth initiatives to offset industry challenges and drive sales growth [81][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow sales despite near-term economic challenges, with a focus on operational efficiency and cost savings [5][56] - The outlook for the second quarter includes sales guidance of $94 million to $100 million, reflecting a growth of 1% to 7% [61][88] Other Important Information - The company ended the quarter with a cash balance of $3 million and working capital of $118.3 million, with a revolving line of credit balance of $33 million [87] - The effective tax rate for fiscal 2024 is expected to be in the range of 29% to 32% [89] Q&A Session Summary Question: What was the backlog at the end of the quarter? - The increase in backlog was attributed to prepayments for annual insurance and SAP software licenses, totaling about $2.5 million [30][31] Question: Can you quantify the impact of growth initiatives on first quarter sales? - Growth initiatives were a substantial factor in sales growth, with the business likely down in the high single-digit to low double-digit range without them [92] Question: What is the outlook for SG&A expenses? - SG&A expenses are expected to remain between $16 million and $17 million per quarter, with growth at a lower rate than overall top line growth in future years [69] Question: How is the company managing its inventory levels? - Inventory levels have been steady, with a focus on reducing inventory throughout the year to improve cash flow [62][87] Question: What is the status of the Mexicali plant? - The Mexicali plant is currently leased out, and the company will assess demand to determine future needs [121][122]