Flexsteel Posts Sales & Net Income Increase For Quarter

Furniture World Magazine

Flexsteel Industries, Inc. reported sales and earnings for its second quarter and fiscal year-to-date ended December 31, 2007. The Company reported net sales for the quarter ended December 31, 2007 of $106.0 million compared to the prior year quarter of $105.7 million, an increase of 0.3%. Net income for the current quarter was $1.9 million or $0.28 per share compared to $1.4 million or $0.21 per share in the prior year quarter. Net sales for the six months ended December 31, 2007 and 2006 were $206.9 million and $207.0 million, respectively. Net income for the six months ended December 31, 2007 was $3.1 million or $0.46 per share, an increase of 55% from net income of $2.0 million or $0.30 per share for the six months ended December 31, 2006. For the quarter ended December 31, 2007, residential net sales were $67.5 million compared to $67.0 million, an increase of 0.8% from the prior year quarter. Recreational vehicle net sales were $14.9 million in the current and prior year quarters. Commercial net sales were $23.6 million compared to $23.8 million in the prior year quarter, a decrease of 0.7%. For the six months ended December 31, 2007, residential net sales were $130.2 million, an increase of 1.1% from the six months ended December 31, 2006. Recreational vehicle net sales were $30.6 million, a decrease of 0.9% from the six months ended December 31, 2006. Commercial net sales were $46.1 million, a decrease of 2.8% from the six months ended December 31, 2006. Gross margin for the quarter ended December 31, 2007 was 20.8% compared to 18.7% in the prior year quarter. For the six months ended December 31, 2007, the gross margin was 20.2% compared to 18.4% for the prior year six-month period. The gross margin improvement for the quarter and the six-month period is primarily due to the impact of changes in product mix and better cost control, as compared to the prior year periods. Selling, general and administrative expenses were 17.8% and 16.4% of net sales for the quarters ended December 31, 2007 and 2006, respectively. The increase in quarterly SG&A expenses was due primarily to an increase in selling expenses of approximately $1.2 million and an increase in bad debt expense of approximately $0.3 million. For the six months ended December 31, 2007 and 2006, selling, general and administrative expenses were 17.6% and 16.7% of net sales, respectively. The increase in SG&A expenses for the six-month period was due primarily to an increase in selling expenses of approximately $1.3 million and an increase in bad debt expense of approximately $0.5 million. Working capital (current assets less current liabilities) at December 31, 2007 was $102.7 million. Net cash provided by operating activities was $3.7 million for the six months ended December 31, 2007. Significant changes in working capital from June 30, 2007 to December 31, 2007 included decreased accounts receivable of $8.8 million, increased inventory of $9.3 million and decreased accounts payable of $0.9 million. The decrease in receivables is related to 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. Capital expenditures were $0.9 million during the first six months of fiscal year 2008. Depreciation and amortization expense was $2.4 million and $2.7 million in the six-month periods ended December 31, 2007 and 2006, respectively. The Company expects that capital expenditures will be approximately $1.5 million for the remainder of the fiscal year, primarily for manufacturing equipment. 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: Events on national and international economic and political fronts have put a significant damper on consumer confidence in the United States. A slumping housing market impacted greatly by sub-prime mortgage defaults and rising oil prices leading to increased cost for materials and transportation are two principal contributors to a general slowdown of the overall economy and the furniture market in particular. Although industry-wide trends indicate a soft market environment for residential products, orders for the Company’s residential products have remained constant throughout the first half of fiscal 2008. The Company expects order levels to remain comparable to the prior year levels throughout fiscal year 2008. However, further industry-wide declines could result in lower order levels for the Company. Orders for recreational vehicle products continue to be down, and we expect this to continue through the remainder of fiscal year 2008. Our orders for products into commercial hospitality applications slowed in the first half of the 2008 fiscal year as compared to the relatively high levels experienced in the first half of fiscal year 2007, and we expect orders to be lower than the prior year period into the second half of fiscal year 2008. The Company anticipates continued modest increases in commercial office orders and shipments through the balance of fiscal year 2008. The Company continues to review capital allocation in relation to business conditions and to explore cost control opportunities in all facets of its 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. 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. For more information, visit http://www.flexsteel.com.