Flexsteel Reports Net Sales Decrease For Quarter

Furniture World Magazine

Flexsteel Industries, Inc. reported sales and earnings for its second quarter and fiscal year-to-date ended December 31, 2006. Net sales for the fiscal quarter ended December 31, 2006 were $105.7 million compared to the prior year quarter of $106.3 million, a decrease of 0.6%. Net income for the current quarter was $1.4 million or $0.21 per share, compared to $0.5 million or $0.07 per share in the prior year quarter. Net sales for the six months ended December 31, 2006 were $207.0 million compared to $203.7 million in the prior year six-month period, an increase of 1.6%. Net income for the six months ended December 31, 2006 was $2.0 million or $0.30 per share, compared to net income of $1.5 million or $0.22 per share for the six months ended December 31, 2005. For the quarter ended December 31, 2006, residential net sales were $67.0 million, compared to $69.6 million, a decrease of 3.7% from the prior year quarter. Recreational vehicle net sales were $14.9 million, compared to $15.9 million, a decrease of 6.2% from the prior year quarter. Commercial net sales were $23.8 million, compared to $20.8 million in the prior year quarter, an increase of 14.1%. For the six months ended December 31, 2006, residential net sales were $128.8 million, an increase of 0.9% from the six months ended December 31, 2005. Recreational vehicle net sales were $30.8 million, a decrease of 9.7% from the six months ended December 31, 2005. Commercial net sales were $47.4 million, an increase of 13.2% from the six months ended December 31, 2005. Gross margin for the quarter ended December 31, 2006 was 18.7% compared to 18.5% in the prior year quarter. For the six months ended December 31, 2006, the gross margin was 18.4% compared to 19.1% for the prior year six-month period. Changes in product mix and continued pricing pressures combined with continued under absorption of fixed manufacturing costs have negatively impacted gross margin during the current six-month period, as compared to the prior year six-month period. Selling, general and administrative expenses were 16.4% and 17.5% of net sales for the quarters ended December 31, 2006 and 2005, respectively. For the six months ended December 31, 2006 and 2005, selling, general and administrative expenses were 16.7% and 17.7%, respectively. The decrease in selling, general and administrative costs on a quarterly and year-to-date basis in comparison to prior year periods is due primarily to lower selling expenses, and to a lesser extent to lower collection related expenses and a reduction in stock-based compensation expense. Working capital (current assets less current liabilities) at December 31, 2006 was $96.8 million. Net cash provided by operating activities was $11.3 million for the six months ended December 31, 2006. Fluctuations in net cash provided by operating activities were primarily the result of a reduction in finished product and raw material inventories. The decrease of approximately $5.2 million in finished product inventory is primarily due to improved inventory turns. The decrease of approximately $2.5 million in raw material inventory is due to lower levels of domestic manufacturing. Capital expenditures were $3.0 million during the first six months of fiscal year 2007. Depreciation and amortization expense was $2.7 million in each of the six-month periods ended December 31, 2006 and 2005. The Company expects that capital expenditures will be approximately $9.0 million for the remainder of the fiscal year, including approximately $6.0 million for the purchase of a west coast warehouse building. The Company believes that existing credit facilities are adequate for its capital requirements for the remainder of fiscal year 2007. All earnings per share amounts are on a diluted basis. Outlook: The residential and vehicle markets continued soft through the Company's second fiscal quarter. Sales of products into commercial applications showed continued strength. The Company expects these business conditions to continue through the remainder of the 2007 fiscal year. The Company continues to explore cost control opportunities in all facets of its business and will continue to evaluate and implement sell price increases for products, as warranted. The Company believes it has the necessary inventories and product offerings in place to take advantage of opportunities for expansion of certain markets, such as commercial office and hospitality. The Company will continue 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.