Flexsteel Reports Residential Net Sales Down 11.9%%

Furniture World News

Flexsteel Industries, Inc. reported results of operations for its third quarter and fiscal year-to-date ended March 31, 2009. The Company reported net sales for the quarter ended March 31, 2009 of $73.6 million compared to the prior year quarter of $98.1 million, a decrease of 25.0%. The Company reported a net loss for the current quarter of $1.9 million or $0.28 per share compared to net income of $0.8 million or $0.13 per share in the prior year quarter. During the current quarter the Company recorded pre-tax charges of approximately $1.7 million of inventory write-downs and $0.5 million of employee separation costs due to business conditions. Refer to the table included in supplemental information “Non-GAAP Disclosure” for impact on per share earnings. Net sales for the nine months ended March 31, 2009 were $249.6 million compared to $305.0 million in the prior year nine-month period, a decrease of 18.2%. The Company reported a net loss for the current nine-month period of $2.3 million or $0.35 per share compared to net income of $3.9 million or $0.59 per share in the prior year period. During the current nine-month period the Company recorded pre-tax charges of approximately $2.4 million related to facility consolidation and employee separation costs and the aforementioned $1.7 million inventory write-down. Refer to the table included in supplemental information “Non-GAAP Disclosure” for impact on per share earnings. For the quarter ended March 31, 2009, residential net sales were $53.6 million, compared to $60.9 million, a decrease of 11.9% from the prior year quarter. Recreational vehicle net sales were $2.5 million for the quarter ended March 31, 2009, compared to $14.0 million in the prior year quarter, a decrease of 82.0%. Commercial net sales were $17.5 million for the quarter ended March 31, 2009, compared to $23.2 million in the prior year quarter, a decrease of 24.9%. For the nine months ended March 31, 2009, residential net sales were $173.7 million, compared to $191.2 million, a decrease of 9.1% from the nine months ended March 31, 2008. Recreational vehicle net sales were $13.4 million for the nine months ended March 31, 2009, a decrease of 70.0% from net sales of $44.5 million for the nine months ended March 31, 2008. Commercial net sales were $62.5 million for the nine months ended March 31, 2009, a decrease of 9.9% from net sales of $69.3 million for the nine months ended March 31, 2008. Gross margin for the quarter ended March 31, 2009 was 16.5% compared to 18.4% in the prior year quarter. The decrease in gross margin percentage for the quarter is primarily due to $1.7 million (2.2% of net sales) adjustment to realizable value on inventory due to business conditions primarily related to vehicle seating. For the nine months ended March 31, 2009, the gross margin was 18.2% compared to 19.6% for the prior year nine-month period. The decrease in gross margin percentage for the nine-month period is primarily due to under-utilization of capacity on significantly lower sales volume and the aforementioned $1.7 million adjustment to realizable value on inventory. Selling, general and administrative expenses were 19.6% and 16.8% of net sales for the quarters ended March 31, 2009 and 2008, respectively. This percentage increase is due to under-absorption of fixed costs on the lower sales volume and an increase in bad debt expense of approximately $0.3 million. For the nine months ended March 31, 2009 and 2008, selling, general and administrative expenses were 18.7% and 17.3%, respectively. This percentage increase is due to under-absorption of fixed costs on the lower sales volume and an increase in bad debt expense of approximately $0.7 million. Working capital (current assets less current liabilities) at March 31, 2009 was $87.8 million. Significant changes in working capital from June 30, 2008 to March 31, 2009 included decreased accounts receivable of $11.6 million, decreased inventory of $9.1 million and decreased accounts payable of $3.8 million. The decrease in receivables is related to lower shipment volume, as well as the timing of shipments to customers and the related payment terms. Inventory decreased $7.4 million due to lower forecasted customer requirements and $1.7 million due to write-downs related to current business environment primarily in vehicle seating applications. The decrease in accounts payable relates to reduced purchase volume based on current demand. Net cash provided by operating activities was $12.9 million for the nine months ended March 31, 2009. Cash from operating activities was used primarily to reduce borrowing by $12.0 million and pay dividends of $2.0 million. Capital expenditures were $0.9 million during the first nine months of fiscal year 2009. Depreciation and amortization expense was $2.8 million and $3.4 million for the nine-month periods ended March 31, 2009 and 2008, respectively. The Company expects that capital expenditures will be less than $0.5 million for the remainder of fiscal year 2009. The Company believes that existing credit facilities are adequate for its capital requirements for the remainder of fiscal year 2009. All earnings per share amounts are on a diluted basis. Outlook The consolidation of manufacturing operations that the Company announced on September 10, 2008 was substantially completed as of December 31, 2008. However, workforce reductions have taken place at other facilities as we continue to adjust operations to bring production capacity in line with current and expected demand for our products. Company wide employment has been reduced approximately 30% over the past year. Demand for our products is dependent on factors such as consumer confidence, affordable housing, reasonably attainable financing and an economy with low levels of unemployment and high levels of disposable income. These factors are all currently in poor positions, and indications are that they will remain that way in the near-term. We are not anticipating significant improvements in market conditions at this time, and are managing our business on that basis. While we expect that current business conditions will persist for the remainder of calendar year 2009, we remain optimistic that our strategy of a wide range of quality product offerings and price points to the residential, recreational vehicle and commercial markets combined with our conservative approach to business will be rewarded over the longer-term. 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. For more information, visit http://www.flexsteel.com.