DUBUQUE, Iowa — Upholstery and case goods resource Flexsteel Industries reported declines in sales and earnings for its first fiscal quarter ended Sept. 30.
Net sales were $95.7 million, down 30.5% from the $137.7 million reported during the same period last year, a $42 million decrease.
About $38.7 million of the decrease was due to lower sales at retail stores and the balance of $3.3 million was due to a decline in sales through e-commerce channels. The company said that sales during the prior year quarter were particularly strong because of a surge in Covid-induced spending on residential furniture.
The company also reported net income of $300,000, or 5 cents per share during the quarter compared to net income of $4.4 million, or 61 cents per share in the prior year quarter.
The reported net income included a $300,000 pretax charge for expenses related to an unsolicited proposal to purchase Flexsteel shares received in August and the subsequent evaluation and unanimous rejection by the company’s board. Excluding this, the company reported net income of $500,000, or 9 cents per share, compared to adjusted net income of $3.4 million, or 48 cents per share during the same period last year.
Other highlights of the report included the following:
+ The company reported gross margin as a percentage of net sales of 16%, compared to 17% for the prior year quarter, a drop of 100 basis points. This was largely due to the impact of lower volume deleveraging fixed manufacturing costs and an increased cost of delivery due to higher diesel fuel costs, which was partially offset by improvement related to reduced ancillary charges during the quarter.
+ SGA expenses decreased to $14.6 million compared to $18.8 million during the same period last year, down 22.4%. The company said this was due primarily to reduced compensation expenses and controlled spending across all other categories.
+ During the quarter it had $121.4 million in inventory, down from $141.2 million during the same period last year.
+ Flexsteel also reported a tax benefit of $200,000 during the first quarter compared to a $1.3 million tax expense during the same period last year. The company said the effective tax rate is largely impacted by adjustments related to uncertain tax positions.
+ The company ended the quarter with a cash balance of $4 million, and working capital of $116.1 million. It also has an available $40.4 million under its secured line of credit.
+ During the quarter it also made a debt repayment of $7.7 million, and reported cash flow from operations of $13 million.
“Despite challenging macroeconomic conditions, including weakened demand, intensifying competitive pricing pressures and an overabundance of retail inventory, we were able to deliver solid results in the first quarter,” said Jerry Dittmer, president and chief executive officer. “I am encouraged that we were able to adjust to these challenges and deliver sales for the quarter of $95.7 million, which outperformed our sales guidance of $80 (million) to $90 million.”
Compared to pre-pandemic sales from the first quarter of fiscal 2020, he noted, home furnishings product sales were up $6.5 million, or 7.3%.
He added that while the company’s long-term outlook is positive, the next six to nine months will be challenging because of excess inventories for both retailers and manufacturers, along with margin pressures from competitive pricing and economic headwinds.
“Regardless of external challenges, we remain focused on executing our growth strategy, launching exciting new products, and continuing to deliver on our industry leading lead times of three to five weeks for custom manufactured product,” he added, noting that the company recently launched its new brand, Charisma, which he said is “designed to serve customers seeking good quality, stylish furniture at affordable prices. Customer interest has been positive, and we began production last week to fulfill a strong backlog of new orders.”
He said that the company also is on track for a third-quarter launch of its Zecliner sleep solution recliner, and flex, a small parcel, contemporary modular furniture solution.
“At the same time that we’re advancing our growth initiatives, we are mindful of looming economic uncertainties and the need to remain operationally and financially agile if market conditions were to change quickly,” he added. “Our top priority is growth and servicing customers. However we are also focused near-term on working capital improvements, generating cash, and reducing debt to effectively navigate various economic scenarios without compromising our growth pursuits. I’m confident that the investments we’ve made, and will continue to make, in talent, product innovation, operational capabilities and customer experience improvements, have effectively positioned us to compete well in the near term as well as achieve our longer-term vision for the company.”