Company plans to close its Dublin, Georgia, plant, a move that will result in annual cost savings of $4 million to $4.5 million, impact 150 jobs
DUBUQUE, Iowa — Flexsteel Industries reported a 7.5% increase in sales for its second fiscal quarter 2024 ended Dec. 31 along with improvements in both net income and gross margin.
However, the company also announced plans to close its Dublin, Georgia, manufacturing plant and product development and engineering facility, a move that will impact about 150 workers.
The company will shift the manufacturing of upper-end custom stationary upholstery produced in the Dublin facility to its Juarez, Mexico, plant, which is said to employ between 1,300 to 1,400 workers. It also will move the product development and engineering segment to High Point, where it has opened a similar product engineering facility.
The company noted that this move is expected to “improve the customer experience through reduced lead times and reduced handling damage and will enable the company to streamline inventory, manufacturing and logistics execution while maintaining exceptional quality across our full product offering.”
It expects to achieve $4 million to $5 million in annualized savings with the closure, which is expected to occur by the end of the fiscal fourth quarter. It said the facility supports less than 5% of annual sales and that it expects to retain the majority of these sales during the transition.
For the second quarter, the full-line furniture resource reported net sales of $100.1 million, up 7.5% from the $93.1 million in sales reported for the same period last year. The company said its net sales were driven by a $9.9 million, or a 12.5% increase in home furnishings sales through retail stores, both in unit volume and product mix.
Sales of products sold through e-commerce channels decreased by $2.9 million, or 20.3% compared to the second quarter of last year. It noted that this resulted from “softer consumer demand and less promotional activity to improve overall profitability.”
It reported net income of just over $3 million, or 57 cents per share, compared to $2.9 million, or 53 cents per share the same period last year.
“I am very pleased with our second-quarter results, which are consistent with the preliminary results announced on January 11th,” said Jerry Dittmer, chief executive officer. “While headwinds persist in our industry largely due to shifts in discretionary consumer spending towards experiences and away from home furnishings, we are competing well and growing both our top and bottom line.”
He added that the $100.1 million in net sales was slightly above its sales guidance range of $94 million to $100 million.
“Comparisons to prior year continued to be adversely impacted by the elimination of ocean freight surcharges in the prior year when ocean container delivery costs were inflated,” he said. “Excluding the approximately $3.5 million impact from surcharge reductions, growth from unit volume and sales mix was an impressive 11.7% in the quarter, reflecting our strong sales execution.
“In addition, we are executing well operationally and leveraging the combined benefits of continued productivity and cost savings, pricing discipline and ongoing product portfolio management, to meaningfully expand gross margin and improve operating income. Our operating margin of 4.6% in the second quarter was a significant improvement compared to the first quarter and prior-year quarter, and above our guidance range of 2% to 4%. Lastly, we are making strong progress in improving working capital efficiency. Given improved demand stability and better supplier lead times, we optimized and reduced our inventories by $15.6 million in the second quarter while continuing to provide exceptional service levels to customers.”
Net sales for the full six months totaled $194.7 million, up 3.4% from the $188.8 million in sales reported the same period the year prior.
Net income for the period totaled $3.8 million, or 71 cents per share, compared to net income of $3.1 million, or 58 cents per share, the same period last year.
The company also reported gross margin of 21.9% compared to 17% in the prior quarter and operating income of $4.6 million, or 4.6% of net sales, compared to $3.8 million or 4% of net sales in the prior-year quarter. The company said the increase in gross margin was due primarily to cost control, material cost savings initiatives and fixed-cost leverage on higher sales volume.
In addition, the company reported cash flow from operations of $18.9 million during the quarter, which the company said was driven by higher profits and its $15.6 million inventory reduction. It also said that it repaid $15.1 million in debt during the quarter, which it noted represents a 46% reduction in borrowings under its line of credit.
Its cash balance at the end of the quarter totaled $3.3 million, while its working capital totaled $100.5 million. It also reported the availability of $39.1 million under its secured line of credit.
Capital expenditures for the six months ended Dec. 31 totaled $3.1 million.
Relating to the closure of the Dublin facility, the company said that it expects to incur pre-tax restructuring and related expenses between $2.5 million and $3.2 million. These one-time costs, it said, include about $2 million to $2.5 million in employee separations and $500,000 to $700,000 in other expenses related to the closure. Most of these costs are expected to result in cash expenditures primarily during the third and fourth quarters.
The company plans to list the facility for sale after the closure and said it expects a future one-time gain in excess of the carrying value of the asset.