Flexsteel Reports Lower Third Quarter Sales & Earnings

Furniture World Magazine

Flexsteel Industries, Inc. reported sales and earnings for its third quarter and fiscal year-to-date ended March 31, 2008. The Company reported net sales for the quarter ended March 31, 2008 of $98.1 million compared to the prior year quarter of $104.1 million, a decrease of 5.7%. Net income for the current quarter was $0.8 million or $0.13 per share compared to $1.5 million or $0.23 per share in the prior year quarter. The prior year quarter included an after tax gain of $0.3 million or $0.04 per share from the sale of land. Net sales for the nine months ended March 31, 2008 were $305.0 million compared to $311.1 million in the prior year nine-month period, a decrease of 2.0%. Net income for the nine months ended March 31, 2008 was $3.9 million or $0.59 per share compared to net income of $3.5 million or $0.53 per share, including the aforementioned $0.3 million or $0.04 per share after tax gain from the sale of land, for the nine months ended March 31, 2007. For the quarter ended March 31, 2008, residential net sales were $60.9 million, compared to $59.5 million, an increase of 2.5% from the prior year quarter. Recreational vehicle net sales were $14.0 million for the quarter ended March 31, 2008, compared to $17.6 million, a decrease of 20.6% from the prior year quarter. Commercial net sales were $23.2 million for the quarter ended March 31, 2008, compared to $27.0 million in the prior year quarter, a decrease of 14.0%. For the nine months ended March 31, 2008, residential net sales were $191.1 million, an increase of 1.6% from the nine months ended March 31, 2007. Recreational vehicle net sales were $44.5 million for the nine months ended March 31, 2008, a decrease of 8.0% from the nine months ended March 31, 2007. Commercial net sales were $69.3 million for the nine months ended March 31, 2008, a decrease of 6.9% from the nine months ended March 31, 2007. Gross margin for the quarter ended March 31, 2008 was 18.4% compared to 19.7% in the prior year quarter. The gross margin percentage decrease is primarily due to an approximate $1.3 million aggregated impact related to increases in raw material costs, fuel related transportation costs and under absorption of fixed manufacturing costs on the lower sales volume in the current quarter. For the nine months ended March 31, 2008, the gross margin was 19.6% compared to 18.9% for the prior year nine-month period. A portion of the gross margin improvements realized during the first half of the current fiscal year have been offset by the aforementioned cost increases experienced in our third fiscal quarter. The Company is committed to adjusting its selling prices to reflect the additional costs that it has experienced, however, there will be a time lag in realization of results. Selling, general and administrative expenses were 16.8% and 17.6% of net sales for the quarters ended March 31, 2008 and 2007, respectively. The decrease in SG&A expenses for the current quarter compared to the prior year quarter is primarily due to lower performance based compensation accruals. For the nine months ended March 31, 2008 and 2007, selling, general and administrative expenses were 17.3% and 17.0%, respectively. The slight percentage increase in SG&A expense for the nine-month period was primarily a result of a change in revenue on a period over period basis. Working capital (current assets less current liabilities) at March 31, 2008 was $103.3 million. Significant changes in working capital from June 30, 2007 to March 31, 2008 included decreased accounts receivable of $15.7 million, increased inventory of $5.9 million and decreased accounts payable of $3.9 million. The decrease in receivables is related to lower shipment volume and improved collections, as well as the timing of shipments to customers and the related payment terms. The increase in inventory is due primarily to the timing of purchases of finished goods to meet our forecasted customer requirements and new product introductions. The decrease in accounts payable relates to the timing of purchases and the related payments. Net cash provided by operating activities was $11.4 million for the nine months ended March 31, 2008. Cash from operating activities was used to reduce borrowing by $5.9 million, pay dividends of $2.6 million, increase cash on hand by $2.2 million and purchase capital assets, primarily manufacturing equipment, of $1.0 million. Depreciation and amortization expense was $3.4 million and $4.0 million for the nine-month periods ended March 31, 2008 and 2007, respectively. The Company expects that capital expenditures will be less than $1.0 million for the remainder of fiscal year 2008. The Company believes that existing credit facilities are adequate for its capital requirements for the remainder of fiscal year 2008. All earnings per share amounts are on a diluted basis. Outlook Consumers in the United States are paying higher amounts for food. Fuel prices are increasing almost on a daily basis. The unemployment level has increased and in many cases homes have declined in value. Current events on a national level, including the mortgage credit crisis and the upcoming presidential election, contribute to uncertainty for consumers, as well. International events, such as the war in Iraq, also give consumers pause. As a result, consumer confidence continues to decline. These events are creating a very challenging business climate for the products that we sell. In the face of these challenges, the order rate for our residential products has declined during our third fiscal quarter. We anticipate that our fourth fiscal quarter shipments will be lower than the prior year quarter due to lower order backlogs and declining order rates. Consumer demand for recreational vehicles continues to be weak, creating lower order and production levels by most of the Original Equipment Manufacturers that we provide product to, and as a result the demand for our products is lower than in the prior year. We expect that this reduced demand for residential and recreational vehicle products will continue through the balance of calendar year 2008. Orders and shipments of our commercial office and hospitality products have slowed along with the overall commercial market from the relatively high levels experienced in the prior year. We expect shipments to be lower than the prior year through the balance of the fiscal year. The Company continues to focus on the processes that it can control regardless of the level of consumer confidence and national and international macroeconomic circumstances that we face. We will continue to review our allocation of capital resources in relation to business conditions and to explore cost control opportunities in all facets of our business. The Company believes it has the necessary inventories, product offerings and marketing strategies in place to take advantage of opportunities for expansion of market share, especially for our residential products. We believe that consumers will continue to value a broad selection of designs, as well as a wide range of fabrics and leathers. Based on this, the Company anticipates continuing its strategy of providing furniture from a wide selection of domestically manufactured and imported products. About Flexsteel: Flexsteel Industries, Inc. is headquartered in Dubuque, Iowa, and was incorporated in 1929. Flexsteel is a designer, manufacturer, importer and marketer of quality upholstered and wood furniture for residential, recreational vehicle, office, hospitality and healthcare markets. All products are distributed nationally.