- Net Sales: $110.8 million, growth of 4.7% compared to $105.8 million in the prior year quarter.
- Sales Orders: $108.5 million, 17% above prior year quarter orders of $92.7 million.
- Sales Order Backlog: $59.5 million, 20% above the prior year ending backlog of $49.7 million.
- GAAP Operating Income: $7.6 million or 6.9% of sales.
- Adjusted Operating Income: $6.2 million or 5.6% of sales.
- Annual Sales Growth: 4.8% for fiscal year 2024.
- Adjusted Operating Margin: 5.6% in the fourth quarter, up from 4% in the prior year quarter.
- Adjusted Operating Income for Fiscal Year 2024: $18.3 million, 126% year-over-year improvement.
- Inventories Reduction: Over $25 million in fiscal year 2024.
- Operating Cash Flow: Almost $32 million.
- Debt Reduction: Paid down debt by 66% or $9.4 million compared to the fiscal third quarter.
- Cash Balance: $4.8 million at the end of the quarter.
- Working Capital: $95 million.
- Line of Credit Balance: $4.8 million.
- First Quarter Sales Guidance: Between $100 million and $105 million, reflecting 5% to 10% growth compared to the prior year quarter.
- First Quarter Gross Margin Guidance: Between 21.5% and 22.0%.
- First Quarter SG&A Costs: Between $16.5 million and $17.0 million.
- First Quarter Operating Income Margin Guidance: 5.0% to 6.0%.
- First Quarter Free Cash Flow Guidance: Between $0 to $5 million.
- First Quarter Debt Levels Guidance: Between $0 and $7 million.
- First Quarter Capital Expenditures: Between $0.5 million and $1.0 million.
- Effective Tax Rate for Fiscal 2025: Expected to be in the range of 30% to 32%.
Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Flexsteel Industries Inc (FLXS, Financial) reported a 4.7% sales growth in the fourth quarter, marking the third consecutive quarter of year-over-year growth.
- Annual sales growth for fiscal year 2024 was 4.8%, outperforming many industry participants who experienced double-digit declines.
- Adjusted operating margin improved to 5.6% in the fourth quarter, up from 4% in the prior year quarter.
- The company reduced inventories by over $25 million in fiscal year 2024 while maintaining strong customer service levels.
- Flexsteel Industries Inc (FLXS) generated almost $32 million in operating cash flow, significantly reducing bank debt.
Negative Points
- Weak consumer demand is expected to continue to be a major headwind for the industry in the near term.
- The impact of inflation and high interest rates is negatively affecting consumer confidence and the housing market, which is crucial for furniture demand.
- E-commerce sales have been particularly challenging, with sluggish performance in the ready-to-assemble homestyles business.
- The company faces ongoing pressure from ocean freight costs, necessitating the implementation of surcharges.
- Wage pressures in distribution centers and Mexico operations are expected to impact costs in the second half of the fiscal year.
Q & A Highlights
Q: Can you parse out the growth from the core business versus new channels of distribution?
A: Our overall growth was driven by gains in both our core business and strategic growth initiatives. Investments in new product development and customer experience are key drivers in our core business, while initiatives like Zecliner, Flex, Charisma, and Big Box entries are contributing to growth in expanded markets.
Q: How do you see sales trends through retail stores versus e-commerce shaping up in the first quarter and through fiscal 2025?
A: The e-commerce front, particularly our ready-to-assemble homestyles business, remains challenging due to macroeconomic factors like inflation and high interest rates. However, we are performing well on the retail front, which we expect to be a positive catalyst for overall growth in fiscal year 2025.
Q: Are there any other cost factors we should consider besides ocean freight costs?
A: Besides ocean freight costs, we are experiencing some wage pressure in our distribution centers and Mexico operations. We anticipate normal cost adjustments for labor in Mexico in the second half of the year, but other than that, we haven't seen significant inflationary pressures.
Q: What are the key drivers behind your consistent profit improvement?
A: The keys to our profit improvement include sales growth, strong operational execution, efficiencies, robust cost savings, and disciplined product portfolio management. These factors have strong momentum and will continue to drive margin expansion in fiscal year 2025.
Q: How are you addressing weak consumer demand and industry headwinds?
A: We remain committed to growing and gaining market share despite challenging conditions. Our strategic priorities include differentiating through innovation and new product development, expanding our brand portfolio, and penetrating new sales channels. We are also investing in consumer insights, innovation, and marketing to drive long-term growth.
Q: What is your outlook for the first quarter and fiscal year 2025?
A: We expect first-quarter sales between $100 million and $105 million, reflecting 5% to 10% growth. Gross margins are projected to be between 21.5% and 22.0%, with operating income margins between 5.0% and 6.0%. We anticipate modest gross margin growth throughout the year, driven by sales leverage, cost savings, and new product profitability.
Q: How are you managing your balance sheet and cash flow?
A: We ended the quarter with a cash balance of $4.8 million and working capital of $95 million. We reduced our debt by 66% compared to the fiscal third quarter. Our near-term cash priorities include reducing debt, funding innovation, and capital expenditures, with opportunistic share repurchases if the stock price is significantly discounted.
Q: What are your strategic priorities for fiscal year 2025?
A: Our priorities include growing through core markets and expanding into new markets, investing in consumer insights, innovation, and marketing, and driving profit growth through operational excellence and disciplined portfolio management. We aim to strengthen our market leadership and deliver exceptional results to our customers and investors.
Q: How are you addressing the challenges in the e-commerce market?
A: The e-commerce market, particularly at lower price points, remains challenging. We are focusing on stabilizing macroeconomic factors like inflation and high interest rates. Despite these challenges, we are performing well in the retail market, which we expect to drive growth in fiscal year 2025.
Q: What are your plans for capital expenditures and tax rates in fiscal year 2025?
A: We expect first-quarter capital expenditures between $0.5 million and $1.0 million. The effective tax rate for fiscal 2025 is projected to be in the range of 30% to 32%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
