Flexsteel Reports 15% Decrease In Quarterly Residential Net Sales

Furniture World Magazine

Flexsteel Industries, Inc. reported sales and earnings for its third quarter and fiscal year-to-date ended March 31, 2007. Net sales for the fiscal quarter ended March 31, 2007 were $104.1 million compared to the prior year quarter of $110.3 million, a decrease of 6%. Net income for the current quarter was $1.5 million or $0.23 per share, including a $0.4 million pre-tax gain from the sale of vacant land, compared to $1.8 million or $0.27 per share in the prior year quarter. Net sales for the nine months ended March 31, 2007 were $311.1 million compared to $314.1 million in the prior year nine-month period, a decrease of 1%. Net income for the nine months ended March 31, 2007 was $3.5 million or $0.53 per share, including the aforementioned $0.4 million pre-tax gain from the sale of vacant land, compared to net income of $3.2 million or $0.49 per share for the nine months ended March 31, 2006. For the quarter ended March 31, 2007, residential net sales were $59.5 million, compared to $69.6 million, a decrease of 15% from the prior year quarter. Recreational vehicle net sales were $17.6 million for the quarter ended March 31, 2007, compared to $19.1 million, a decrease of 8% from the prior year quarter. Commercial net sales were $27.0 million for the quarter ended March 31, 2007, compared to $21.6 million in the prior year quarter, an increase of 25%. For the nine months ended March 31, 2007, residential net sales were $188.2 million, a decrease of 5% from the nine months ended March 31, 2006. Recreational vehicle net sales were $48.4 million for the nine months ended March 31, 2007, a decrease of 9% from the nine months ended March 31, 2006. Commercial net sales were $74.5 million for the nine months ended March 31, 2007, an increase of 17% from the nine months ended March 31, 2006. Gross margin for the quarter ended March 31, 2007 was 19.7% compared to 19.4% in the prior year quarter. This improvement is primarily due to the impact of changes in product mix. For the nine months ended March 31, 2007, the gross margin was 18.9% compared to 19.2% for the prior year nine-month period. Increased freight and warehousing costs and lower sales volume resulting in under absorption of fixed costs have negatively impacted gross margin during the current nine-month period, as compared to the prior year nine-month period. Selling, general and administrative expenses were 17.6% and 16.5% of net sales for the quarters ended March 31, 2007 and 2006, respectively. This increase in selling, general and administrative expenses for the current quarter compared to the prior year quarter is primarily due to the impact of fixed selling costs at the lower residential sales volume. For the nine months ended March 31, 2007 and 2006, selling, general and administrative expenses were 17.0% and 17.3%, respectively. The decrease in selling, general and administrative costs on a year-to-date basis in comparison to the prior year period is due primarily to lower collection related expenses, and to a lesser extent to lower selling expenses and a reduction in stock-based compensation expense. During the quarter ended March 31, 2007, the Company recorded a pre-tax gain on the sale of vacant land of $0.4 million. Working capital (current assets less current liabilities) at March 31, 2007 was $91.0 million. Net cash provided by operating activities was $17.0 million for the nine months ended March 31, 2007. The increase in net cash provided by operating activities was primarily the result of a reduction in finished product and raw material inventories. The decrease of approximately $3.6 million in finished product inventory is primarily due to improved inventory turns. The decrease of approximately $5.6 million in raw material inventory is due to lower levels of domestic manufacturing. Capital expenditures were $10.2 million during the first nine months of fiscal year 2007, including approximately $6.0 million for the purchase of a west coast warehouse, approximately $1.5 million for a warehouse addition in Indiana and approximately $1.4 million for delivery equipment. Depreciation and amortization expense was $4.0 million and $4.1 million for the nine-month periods ended March 31, 2007 and 2006, respectively. The Company expects that capital expenditures will be approximately $1.0 million for the remainder of fiscal year 2007. 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 Consistent with industry-wide trends, the residential and vehicle markets continued soft through the Company’s third fiscal quarter. The Company expects this to continue through the remainder of the 2007 fiscal year. Sales of products into commercial applications continued to be strong in the third quarter of the 2007 fiscal year. We expect the growth rate in commercial applications to moderate somewhat in the fourth quarter of the fiscal year. The Company continues to explore cost control opportunities in all facets of its business. 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. 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.