Release Date: October 22, 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 10% sales growth for the quarter, marking the fourth consecutive quarter of year-over-year growth.
- The company achieved a significant improvement in operating margin, reaching 5.8% compared to 2% in the prior year quarter.
- Flexsteel Industries Inc (FLXS) continues to drive growth through investments in new product development, innovation, customer experience, and marketing.
- The company introduced 27 new product groups and 10 line extensions, contributing to a record year for new product activations.
- Flexsteel Industries Inc (FLXS) has ample manufacturing and distribution capacity to support over 20% growth without significant fixed cost investments.
Negative Points
- Industry demand remains lackluster due to challenging macroeconomic conditions, impacting overall growth potential.
- Weak consumer demand continues to be a headwind, influenced by inflation, lack of housing recovery, and political uncertainties.
- The e-commerce segment, particularly the home styles brand, experienced a 26% decline, highlighting competitive pressures and market challenges.
- Traffic levels at retail partners are down, with retailers expressing cautious optimism about future demand.
- Higher ocean freight costs are expected to impact gross margins, although partially offset by sales growth leverage.
Q & A Highlights
Q: Can you separate the sales gains in your core business versus sales from your growth initiatives?
A: Derek P. Schmidt, President and CEO: We are seeing growth across all aspects of our growth initiatives. The majority of our year-over-year sales dollar growth was from our core business. We have strong traction and momentum, especially with our growth initiatives with strategic accounts, and are seeing positive growth in expanded markets like recliners and case goods.
Q: What are you seeing in terms of actual sell-through to consumers from your retailers?
A: Derek P. Schmidt, President and CEO: Retailers are in good inventory positions, and we see a balanced view of incoming orders and outgoing shipments. However, traffic levels are down, and business is down. Retailers are cautiously optimistic about a seasonal pickup post the Presidential election.
Q: Can you comment on your sales to e-commerce retailers and when you expect a potential reversal in trends?
A: Derek P. Schmidt, President and CEO: Our big box and Flexsteel e-commerce business was up 10% year-over-year, but our Home Styles brand was down 26% due to increased competition and tougher market conditions at lower price points.
Q: What drove the decrease in SG&A expenses, and how should we think about SG&A going forward?
A: Mike Ressler, CFO: The savings are from actions taken last year, including a smaller executive team and cost reviews. We aim to manage SG&A spending in the 15.5% to 16% range while reinvesting in the business without adding too much structural cost.
Q: How much annual revenue can you handle before needing to expand manufacturing and distribution capacity?
A: Derek P. Schmidt, President and CEO: Our current network can support over 20% growth in both manufacturing and distribution.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
