Flexsteel Reports Second Quarter Results

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):

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

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.

Contacts

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