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 fourth quarter and full-year fiscal 2023
results.
Key Results for the Fourth Quarter and Full Year Ended June
30, 2023
- Net sales for the quarter decreased (15.0%) to $105.8 million
compared to $124.5 million in the prior year quarter. For the year,
net sales decreased (27.7%) to $393.7 million compared to $544.3
million in the prior year.
- Fourth quarter net sales grew 6.8% sequentially compared to
$99.1 million in the third quarter, which similarly grew 6.4%
sequentially compared to $93.1 million in the second quarter.
- Gross margin increased to 20.0% for the fourth quarter and
18.0% for the year compared to 14.2% in the prior year quarter and
13.4% for the prior year.
- GAAP operating income of $4.2 million or 4.0% of net sales for
the fourth quarter and operating income of $10.5 million or 2.7% of
net sales for the year compared to $3.6 million or 2.9% of net
sales in the prior year quarter and $6.6 million or 1.2% of net
sales for the prior year.
- GAAP net income per diluted share of $1.91 for the current
quarter and net income per diluted share of $2.74 for the current
year compared to net loss of ($0.05) in the prior year quarter and
net income of $0.28 in the prior year.
- Non-GAAP1 net income per diluted share of $0.36 for the quarter
and $0.87 for the year compared to net income of $0.41 in the prior
year quarter and $0.64 in the prior year.
- Full year cash flow from operations of $23 million.
1GAAP to non-GAAP reconciliations follow the financial
statements in this press release
Management Commentary
“I am pleased with our fourth quarter financial results. The
continued focus on our growth initiatives enabled us to deliver
another quarter of solid sequential sales growth as fourth quarter
results climbed 6.8% above third quarter sales, which in turn, grew
6.4% over second quarter sales. Despite near-term macroeconomic
uncertainty and softening consumer demand within the industry, we
are overcoming these headwinds and building strong sales growth
momentum which we will carry into fiscal year 2024,” said Jerry
Dittmer, President and CEO of Flexsteel Industries. “As important,
we are growing the business profitably. Our operating margins
improved sequentially quarter-over-quarter throughout fiscal year
2023, even with increased strategic investments to support
long-term growth. While challenging market conditions remain as we
start our new fiscal year, I’m confident in our organization’s
ability to grow both sales and profits year-over-year given our
strong momentum and operational execution.”
“To summarize fiscal year 2023, our team was presented with
several hurdles that we had to rise above, most notably a return to
pre-pandemic demand levels which was exacerbated by an additional
curb in consumer demand due to higher interest rates, rising
inflation, and general economic uncertainty. At the same time, the
industry experienced pervasive price reductions as many
manufacturers and retailers quickly dropped prices in response to
lower ocean freight and other cost inputs, forcing others to follow
suit. The downward shift in demand early in the year also left many
retailers with an oversupply of inventory which subsequently
created additional pricing pressures across the industry. Despite
the significant decline in year over year sales caused by these
challenges, our strong team of dedicated employees identified the
obstacles early and executed plans to navigate them while
delivering profitable growth, which resulted in higher full year
operating income of $10.5 million compared to $6.6 million in the
prior year.
At the same time we made important strides in advancing our
strategic growth initiatives: expanding our big box distribution
channel, introducing our Zecliner™ sleep solutions recliner and
flex™, our contemporary modular furniture solution, and launching
the new Charisma brand. We are also proud to have published our
first annual ESG report which can be found on our website at
www.flexsteelindustries.com. This report lays out the foundation of
our approach to environmental, social and governance matters while
formalizing our ongoing commitment to sustainable and responsible
business practices.”
Mr. Dittmer concludes, “While external conditions remain
uncertain, I am confident that our long-term growth outlook remains
promising. Our team’s commitment to profitable growth, combined
with our market momentum, have positioned us to successfully
deliver improved earnings and an even stronger balance sheet in
fiscal year 2024. We are focused on executing our strategic growth
initiatives, investing in future innovation and other competitive
advantages, and delivering sustainable profit improvement through
operational efficiencies while continuing to reduce inventory
levels and pay down debt. In summary, we’re enthusiastic about
fiscal year 2024 and the long-term growth opportunities for the
Company while being attentive to navigating near-term ambiguity in
the economy and furniture industry outlook.”
Operating Results for the Fourth Quarter Ended June 30,
2023
Net sales were $105.8 million for the fourth quarter compared to
net sales of $124.5 million in the prior year quarter, a decrease
of ($18.7) million, or (15.0%). The decrease was driven by lower
sales volume in home furnishings products sold through retail
stores of ($19.9) million, or (17.9%), versus the prior-year
quarter. Sales of products sold through e-commerce channels
increased by $1.2 million or 9.2% compared to the fourth quarter of
the prior year.
Gross margin as a percent of net sales for the quarter ended
June 30, 2023, was 20.0%, compared to 14.2% for the prior-year
quarter, an increase of 580 basis points (“bps”). The 580-bps
increase was primarily driven by operational efficiencies and cost
savings as well as lower inventory write-downs, partially offset by
de-leveraging of fixed costs due to lower net sales.
Selling, general and administrative (SG&A) expenses
increased to 16.0% of net sales in the fourth quarter of fiscal
2023 compared with 11.3% of net sales in the prior-year quarter.
The increase is primarily due to deleverage of fixed expenses from
lower sales as well as continued investment in growth
initiatives.
Operating income for the quarter ended June 30, 2023, was $4.2
million compared to $3.6 million in the prior-year quarter.
The Company reported net income of $10.2 million, or $1.91 per
diluted share, for the quarter ended June 30, 2023, compared to a
net loss of ($0.3) million, or ($0.05) per diluted share, in the
prior-year quarter. The reported net income for the quarter ended
June 30, 2023, included an $8.3 million income tax benefit
primarily due to the reversal of our full valuation allowance on
deferred tax assets. Excluding these items (see attached non-GAAP
disclosure), the Company reported adjusted net income of $1.9
million, or $0.36 per diluted share, as compared to an adjusted net
income of $2.2 million, or $0.41 per diluted share, in the fourth
quarter of the fiscal year 2022.
The Company reported income tax benefit of ($6.4) million, or an
effective rate of (167.5%), during the fourth quarter compared to
$3.6 million tax expense, or an effective rate of 108.1%, in the
prior-year quarter. The effective tax rate is primarily impacted by
the reversal of our full valuation allowance on deferred tax
assets.
Liquidity
The Company ended the quarter with a cash balance of $3.4
million and working capital (current assets less current
liabilities) of $115.5 million, and availability of approximately
$45.8 million under its secured line of credit.
Capital expenditures for the year ended June 30, 2023, were $4.8
million.
Conference Call and Webcast
The Company will host a conference call and audio webcast with
analysts and investors on Tuesday, August 22, 2023, at 8:00 a.m.
Central Time to discuss the results and answer questions.
- Live conference call: 866-777-2509 (domestic) or 412-317-5413
(international)
- Conference calls replay available through August 29, 2023:
877-344-7529 (domestic) or 412-317-0088 (international)
- Replay access code: 8427483
- 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/10181590/fa21e4d4f2 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, 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)
June 30,
2023
2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
3,365
$
2,184
Trade receivables, net
38,168
41,106
Inventories
122,076
141,212
Other
6,417
4,950
Assets held for sale
616
616
Total current assets
170,642
190,068
NONCURRENT ASSETS:
Property, plant and equipment, net
38,652
38,543
Operating lease right-of-use assets
68,294
38,189
Other
12,962
1,941
TOTAL ASSETS
$
290,550
$
268,741
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable - trade
$
24,745
$
32,147
Accrued liabilities
30,360
32,480
Total current liabilities
55,105
64,627
LONG-TERM LIABILITIES:
Lines of credit
28,273
37,739
Other liabilities
65,551
34,815
Total liabilities
148,929
137,181
SHAREHOLDERS' EQUITY:
141,621
131,560
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
$
290,550
$
268,741
FLEXSTEEL INDUSTRIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(in thousands, except per share
data)
Three Months Ended
Twelve Months Ended
June 30,
June 30,
2023
2022
2023
2022
Net sales
$
105,819
$
124,517
$
393,692
$
544,282
Cost of goods sold
84,704
106,845
322,745
471,602
Gross margin
21,115
17,672
70,947
72,680
Selling, general and administrative
16,879
14,091
62,846
66,733
Restructuring expense
—
15
—
730
Environmental remediation
—
—
(2,788
)
—
(Gain) on disposal of assets
—
—
—
(1,400
)
Other expense
—
—
347
—
Operating income
4,236
3,566
10,542
6,617
Other income (expense):
Other income
7
5
18
121
Interest (expense)
(444
)
(233
)
(1,341
)
(835
)
Total other (expense)
(437
)
(228
)
(1,323
)
(714
)
Income before income taxes
3,799
3,338
9,219
5,903
Income tax (benefit) expense
(6,362
)
3,609
(5,559
)
4,050
Net income (loss)
$
10,161
$
(271
)
$
14,778
$
1,853
Weighted average number of common shares
outstanding:
Basic
5,150
5,470
5,225
6,329
Diluted
5,314
5,470
5,385
6,503
Earnings (loss) per share of common
stock
Basic
$
1.97
$
(0.05
)
$
2.83
$
0.29
Diluted
$
1.91
$
(0.05
)
$
2.74
$
0.28
FLEXSTEEL INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (UNAUDITED)
(in thousands)
For the years ended June
30,
2023
2022
OPERATING ACTIVITIES:
Net income
$
14,778
$
1,853
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation
4,572
5,171
Deferred income taxes
(7,154
)
—
Stock-based compensation expense
3,191
1,020
Changes in (recoveries) for losses on
accounts receivable
(380
)
(260
)
(Gain) on disposition of capital
assets
(313
)
(1,782
)
Changes in operating assets and
liabilities
8,295
1,991
Net cash provided by operating
activities
22,989
7,993
INVESTING ACTIVITIES:
Proceeds from sale of capital assets
340
1,937
Capital expenditures
(4,790
)
(3,853
)
Net cash (used in) investing
activities
(4,450
)
(1,916
)
FINANCING ACTIVITIES:
Dividends paid
(3,241
)
(3,911
)
Treasury stock purchases
(3,700
)
(35,052
)
Proceeds from lines of credit
363,805
265,093
Payments on lines of credit
(373,271
)
(230,854
)
Proceeds from issuance of common stock
—
117
Shares withheld for tax payment on
invested shares and options exercised
(951
)
(628
)
Net cash (used in) financing
activities
(17,358
)
(5,235
)
Increase in cash and cash equivalents
1,181
842
Cash and cash equivalents at beginning of
period
2,184
1,342
Cash and cash equivalents at end of
period
$
3,365
$
2,184
FLEXSTEEL INDUSTRIES, INC. AND
SUBSIDIARIES
QUARTERLY NET SALES
(UNAUDITED)
(in thousands, except for percent
change)
Three Months Ended
Quarter-over-Quarter %
Increase/(Decrease)
June 30,
March 31,
December 31,
September 30,
June 30,
March 31,
December 31,
2023
2023
2022
2022
2023
2023
2022
Net sales
$
105,819
$
99,052
$
93,137
$
95,684
6.8
%
6.4
%
(2.7
)%
NON-GAAP DISCLOSURE (Unaudited)
The Company is providing information regarding adjusted net
sales, adjusted net income (loss) and adjusted diluted earnings
(loss) 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, net income (loss) or
diluted earnings (loss) per share of common stock as a measure of
operating performance. A reconciliation of adjusted net income
(loss) and adjusted diluted earnings (loss) 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 operating income to non-GAAP adjusted
operating income:
The following table sets forth the reconciliation of the
Company’s reported GAAP operating income to the calculation of
non-GAAP adjusted operating income for the three and twelve months
ended June 30, 2023, and 2022:
Three Months Ended
Twelve Months Ended
June 30,
June 30,
(in thousands)
2023
2022
2023
2022
Reported GAAP operating income
$
4,236
$
3,566
$
10,542
$
6,617
Restructuring expense
—
15
—
730
Environmental remediation
—
—
(2,788
)
—
(Gain) on disposal of assets
—
—
—
(1,400
)
Other expense
—
—
347
—
Non-GAAP operating income
$
4,236
$
3,581
$
8,101
$
5,947
Reconciliation of GAAP net income (loss) to non-GAAP adjusted
net income:
The following table sets forth the reconciliation of the
Company’s reported GAAP net income (loss) to the calculation of
non-GAAP adjusted net income for the three and twelve months ended
June 30, 2023, and 2022:
Three Months Ended
Twelve Months Ended
June 30,
June 30,
(in thousands)
2023
2022
2023
2022
Reported GAAP Net income (loss)
$
10,161
$
(271
)
$
14,778
$
1,853
Restructuring expense
—
15
—
730
Other expense
—
—
347
—
(Gain) on disposal of assets
—
—
—
(1,400
)
Environmental remediation
—
—
(2,788
)
—
Tax impact of adjustments(1)
—
(16
)
614
460
Expiring state tax credits
1,577
—
1,577
—
Remeasurement of deferred tax assets and
valuation allowance
(9,838
)
2,518
(9,838
)
2,518
Non-GAAP Net income
$
1,900
$
2,246
$
4,690
$
4,161
(1) Effective tax rate of 108.1% was used
to calculate the three months ended June 30, 2022. Effective tax
rates of 25.1% and 68.6% were used to calculate the twelve months
ended June 30, 2023, and June 30, 2022, respectively.
Reconciliation of GAAP income (loss) per share of common
stock to non-GAAP adjusted earnings per share of common
stock:
The following table sets forth the reconciliation of the
Company’s reported GAAP income (loss) earnings per share to the
calculation of non-GAAP adjusted earnings per share for the three
and twelve months ended June 30, 2023, and 2022:
Three Months Ended
Twelve Months Ended
June 30,
June 30,
2023
2022
2023
2022
Reported GAAP Diluted income (loss) per
share
$
1.91
$
(0.05
)
$
2.74
$
0.28
Restructuring expense
—
0.00
—
0.11
Other expense
—
—
0.06
—
(Gain) on disposal of assets
—
—
—
(0.22
)
Environmental remediation
—
—
(0.52
)
—
Tax impact of adjustments(1)
—
(0.00
)
0.11
0.07
Expiring state tax credits
0.30
—
0.29
—
Remeasurement of deferred tax assets and
valuation allowance
(1.85
)
0.46
(1.83
)
0.39
Non-GAAP Diluted earnings per shares
$
0.36
$
0.41
$
0.87
$
0.64
Note: The table above may not foot due to
rounding.
(1) Effective tax rate of 108.1% was used
to calculate the three months ended June 30, 2022. Effective tax
rates of 25.1% and 68.6% were used to calculate the twelve months
ended June 30, 2023, and June 30, 2022, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230821135959/en/
Derek Schmidt, Flexsteel Industries, Inc. 563-585-8122
investors@flexsteel.com
Flexsteel Industries (NASDAQ:FLXS)
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