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Flexsteel Industries, Inc. Reports Fiscal Fourth Quarter and Full Year 2023 Results

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.

 

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