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Flexsteel Announces First Quarter Residential Net Sales Down 2.2%

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Flexsteel Industries, Inc. reported sales and earnings for its first fiscal quarter ended September 30, 2006. The Company reported net sales for the quarter ended September 30, 2006 of $101.3 million compared to the prior year quarter of $97.4 million, an increase of 4.0%. Net income for the current quarter was $0.6 million or $0.09 per share compared to $1.0 million or $0.15 per share in the prior year quarter, a decrease of 42.9%. For the quarter ended September 30, 2006, residential net sales were $56.9 million, a decrease of 2.2% from the prior year quarter net sales of $58.1 million. Recreational vehicle net sales were $15.9 million, a decrease of 12.8% from the prior year quarter net sales of $18.3 million. Commercial net sales were $28.5 million compared to $21.0 million in the prior year quarter, an increase of 35.7%. Gross margin for the quarter ended September 30, 2006 was 18.2% compared to 19.6% in the prior year quarter. The gross margin decline is a result of increased manufacturing and warehousing costs, and under absorption of fixed manufacturing costs. Selling, general and administrative expenses were 17.1% and 17.9% of net sales for the quarters ended September 30, 2006 and 2005, respectively. The decrease in quarterly SG&A expenses is due primarily to lower collection related expenses and reduction in other administrative expenses when compared to the prior year quarter. Working capital (current assets less current liabilities) at September 30, 2006 was $97.5 million compared to $86.6 million at September 30, 2005. Net cash provided by operating activities was $4.9 million at September 30, 2006. Net cash used in operating activities was $6.8 million at September 30, 2005. Capital expenditures were $0.6 million for the quarter ended September 30, 2006. Depreciation and amortization expense was $1.4 million and $1.3 million for the fiscal quarters ended September 30, 2006 and 2005, respectively. The Company expects that capital expenditures will be approximately $4.0 million for the remainder of the 2007 fiscal year as compared to $3.4 million for the prior fiscal year. All earnings per share amounts are on a diluted basis. Outlook Statement From Flexsteel: The U. S. economy and the U.S. furniture industry, including Flexsteel, have always been impacted by world events. However, with the increasing globalization of world markets and economies, the impact of change, both positive and negative, is felt sooner and stronger than ever before. As conflicts play out in various regions of the world, there is uncertainty related to interest rates and volatility with respect to energy costs, factors that we believe will continue to have an adverse effect on the demand for the products that we design, manufacture and market. Retail furniture stores, the primary driver of demand for our residential seating products, have faced a very challenging business environment for the last eighteen months. The demand for recreational vehicles at the wholesale level is the main driving force for our products in the recreational vehicle seating application. Despite the generally favorable longer-term demographics that are expected by the recreational vehicle industry, current demand at the wholesale level has been soft. Improvement in this industry is not expected until the next model year is introduced late in our fourth quarter of the 2007 fiscal year. Our products intended for commercial applications have been well received and the demand for these products is expected to remain strong for the remainder of the 2007 fiscal year. We continue to take actions to address top line growth for each product application and our overall profitability by focusing on those areas that we can control or significantly influence including: new product introductions, refining existing product offerings, adjusting selling and delivery prices, adjusting production capacity and levels and implementing cost control measures for inventory and capital expenditures. Our management believes that we are in a position to respond to the rapid changes that are affecting most of the markets we serve. We will continue to develop products for alternative applications and distribution. We believe that our strategy of providing furniture from a selection of domestically manufactured and imported products is sound business practice. We believe that this blended strategy gives us the opportunity to successfully participate in all the important avenues of furniture distribution in the United States. 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 our web site at http://www.flexsteel.com.

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