Flexsteel Reports Second Quarter Results

Guía de Regalos

DUBUQUE, Iowa–(BUSINESS WIRE)–Flexsteel Industries, Inc. (NASDAQ:FLXS) today reported record second
quarter and fiscal year-to-date net sales and net income.

Financial Highlights for the Quarter:

  • Net sales increased 9.6% to $125 million.
  • Net income increased 14.6% to $5.4 million, 4.3% of net sales.

Financial Highlights for the Six Months:

  • Net sales increased 12.9% to $252 million.
  • Net income increased 16.4% to $11.1 million, 4.4% of net sales.

The following table compares net sales for the quarters ended December
31, (in millions):

    2015     2014    

$ Change

    % Change
Residential $ 105.8 $ 94.8 $ 11.0 11.6%
Commercial 19.6 19.6 0.0 0.0%
Total $ 125.4 $ 114.4 $ 11.0 9.6%
 

The following table compares net sales for the six months ended December
31, (in millions):

    2015     2014    

$ Change

    % Change
Residential $ 212.1 $ 186.3 $ 25.8 13.8%
Commercial 39.8 36.8 3.0 8.2%
Total $ 251.9 $ 223.1 $ 28.8 12.9%
 

Net sales were $125.4 million for the quarter ended December 31, 2015
compared to $114.4 million in the prior year quarter, an increase of
9.6%. Net sales were $251.9 million for the six months ended December
31, 2015 compared to $223.1 million in the prior year period, an
increase of 12.9%. The increase in net sales was primarily for
upholstered furniture and to a lesser extent ready-to-assemble
furniture. As reported in the second quarter of the prior fiscal year,
the Company estimated that West coast port congestion adversely impacted
net sales by at least $6 million for the quarter ended December 31, 2014.

Gross margin as a percent of net sales for the quarter ended December
31, 2015 was 22.1% compared to 23.7% for the prior year quarter. For the
six months ended December 31, 2015, gross margin as a percent of net
sales was 22.1% compared to 23.6% for the prior period. The Company’s
investment in expanding its distribution network capacity is currently
negatively impacting gross margin by $0.6 million per quarter or 0.5% of
net sales. The remainder of the decrease is primarily due to changes in
customer and product mix.

Selling, general and administrative (SG&A) expenses were 15.5% of net
sales in the current year quarter, compared to 17.1% of net sales in the
prior year quarter. For the six month period ended December 31, 2015,
SG&A expenses were 15.1% of net sales compared to 17.0% of net sales in
the prior period. The improvement in SG&A as a percentage of net sales
for the quarter and six months ended December 31, 2015 primarily
reflects fixed cost leverage on higher sales volume.

The Company realized a non-taxable gain on life insurance of $0.3
million or $0.04 per share during the second quarter ended December 31,
2015, and $0.4 million or $0.06 per share during the first quarter ended
September 30, 2014. The gains are included in “other income” in the
Consolidated Statements of Income.

Net income was $5.4 million or $0.69 per share for the quarter ended
December 31, 2015, compared to $4.7 million or $0.61 per share in the
prior year quarter. For the six months ended December 31, 2015, net
income was $11.1 million or $1.43 per share compared to $9.6 million or
$1.25 per share in the prior year period.

Working capital (current assets less current liabilities) at December
31, 2015 was $134 million compared to $120 million at June 30, 2015.
Primary changes in working capital include increases in accounts
receivable of $4.7 million and other current assets of $5.5 million,
decreases in inventory of $2.6 million, accounts payable of $2.5 million
and current borrowings of $6.0 million. The increase in accounts
receivable is due to the increase in net sales and the timing of
collections. Other current assets increased primarily due to changes in
tax-related items. Borrowings were reduced by $6.0 million using cash
provided by operations. Capital expenditures were $5.8 million and
dividend payments totaled $2.7 million.

All earnings per share amounts are on a diluted basis.

Outlook

The Company believes that demand for furniture products in the United
States is moderating. In addition, the prior fiscal year West coast port
congestion resulted in lower second quarter net sales and higher net
sales in the subsequent quarters as the congestion cleared. As a result,
the Company expects moderate top line growth for the balance of the
fiscal year. Residential growth is expected to continue with existing
customers and products, and through product portfolio and customer base
expansion. The Company believes this growth will be led by increased
demand for upholstered and ready-to-assemble products. The Company is
confident in its ability to take advantage of market opportunities.

The Company continues to proceed on two multi-year initiatives, designed
to enhance customer experience and increase shareholder value. The
Company continues to execute its logistics strategy and develop its
business information system requirements. The timing and level of
additional investment required for these initiatives will be evaluated
as the projects progress. Operating capital expenditures are estimated
to be $2.6 million for the remainder of fiscal 2016. The Company
believes it has adequate working capital and borrowing capabilities to
meet these requirements.

The Company remains committed to its core strategies, which include
providing a wide range of quality product offerings and price points to
the residential and commercial markets, combined with a conservative
approach to business. We will maintain our focus on a strong balance
sheet through emphasis on cash flow and increasing profitability. We
believe these core strategies are in the best interest of our
shareholders.

About Flexsteel

Flexsteel Industries, Inc. and Subsidiaries (the “Company”) was
incorporated in 1929 and is one of the oldest and largest manufacturers,
importers and marketers of residential and commercial upholstered and
wooden furniture products in the United States. Product offerings
include a wide variety of upholstered and wood furniture such as sofas,
loveseats, chairs, reclining and rocker-reclining chairs, swivel
rockers, sofa beds, convertible bedding units, occasional tables, desks,
dining tables and chairs and bedroom furniture. The Company’s products
are intended for use in home, office, hotel, healthcare and other
commercial applications. A featured component in most of the upholstered
furniture is a unique steel drop-in seat spring from which our name
“Flexsteel” is derived. The Company distributes its products throughout
the United States through the Company’s sales force and various
independent representatives.

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, retention and
recruitment of key employees, actions by governments including laws,
regulations, taxes and tariffs, inflation, 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 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 web site at http://www.flexsteel.com.

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

 (in thousands)

   
December 31, June 30,
2015 2015
 

ASSETS

 
CURRENT ASSETS:
Cash $ 329 $ 1,282
Trade receivables, net 49,779 45,101
Inventories 111,197 113,842
Other 16,461 10,997
Total current assets 177,766 171,222
 
NONCURRENT ASSETS:
Property, plant, and equipment, net 66,643 64,770
Other assets

3,470

8,627
 
TOTAL $

247,879

$ 244,619
 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 
CURRENT LIABILITIES:
Accounts payable – trade $ 15,859 $ 18,329
Notes payable – current 5,945 11,904
Accrued liabilities 22,225 21,087
Total current liabilities 44,029 51,320
 
LONG-TERM LIABILITIES:
Other long-term liabilities

6,235

6,552
Total liabilities

50,264

57,872
 
SHAREHOLDERS’ EQUITY 197,615 186,747
 
TOTAL $

247,879

$ 244,619
 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share data)

 
Three Months Ended Six Months Ended
December 31, December 31,
2015   2014 2015   2014
NET SALES $ 125,410 $ 114,386 $ 251,942 $ 223,052
COST OF GOODS SOLD (97,726 ) (87,292 ) (196,389 ) (170,439 )
GROSS MARGIN 27,684 27,094 55,553 52,613

SELLING, GENERAL AND ADMINISTRATIVE

(19,500

)

(19,592

)

 

(37,990

)

(37,982

)

LITIGATION SETTLEMENT REIMBURSEMENTS

250

 

 

250

 

 

 
OPERATING INCOME 8,434 7,502 17,813 14,631

OTHER INCOME (EXPENSE):

Other income 116 86 67 707
Interest expense (24 ) (34 ) (61 ) (36 )
Total 92   52   6   671  
INCOME BEFORE INCOME TAXES 8,526 7,554 17,819 15,302
INCOME TAX PROVISION (3,160 ) (2,870 ) (6,690 ) (5,740 )
NET INCOME $ 5,366   $ 4,684   $ 11,129   $ 9,562  
 

AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

Basic 7,575   7,417   7,541   7,395  
Diluted 7,821   7,694   7,774   7,672  
 

EARNINGS PER SHARE OF COMMON STOCK:

Basic

$

0.71

  $

0.63

 

$

1.48

  $ 1.29  

Diluted

$

0.69

  $

0.61

 

$

1.43

  $ 1.25  
 

FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 
Six Months Ended
December 31,
2015   2014

OPERATING ACTIVITIES:

Net income $ 11,129 $ 9,562

Adjustments to reconcile net income to net cash provided by (used
in) operating activities:

Depreciation 3,590 2,201
Stock-based compensation expense 728 1,185
Deferred income taxes 1,805 (184 )
Excess tax (benefit) expense from share-based payments

(687

)

 

41

Change in provision for losses on accounts receivable

(50

)

 

8

Gain (loss) on disposition of capital assets 12 (21 )
Gain on life insurance policies (346 )
Changes in operating assets and liabilities (6,930 ) (18,394 )
Net cash provided by (used in) operating activities 9,251   (5,602 )
 

INVESTING ACTIVITIES:

Net purchases of investments (197 ) (237 )
Proceeds from sale of capital assets 20 26
Proceeds from life insurance policies 2,836
Capital expenditures (5,848 ) (30,242 )
Net cash used in investing activities (3,189 ) (30,453 )
 

FINANCING ACTIVITIES:

Dividends paid (2,707 ) (2,438 )
Proceeds from issuance of common stock 1,128 518
Shares issued to employees, net of shares withheld (164 )
Excess tax benefit (expense) from share-based payments

687

(41

)

(Repayments of) proceeds from current notes payable

(5,959

)

6,481

Proceeds from long-term notes payable

 

9,514

 
Net cash (used in) provided by financing activities (7,015 ) 14,034  
 
Decrease in cash (953 ) (22,021 )
Cash at beginning of period 1,282   22,176  
Cash at end of period $ 329   $ 155  

Contacts

Flexsteel Industries, Inc., Dubuque, IA
Timothy E. Hall, Chief
Financial Officer, 563-585-8392