Flexsteel Industries (FLXS) 22 Aug 232023 Q4 Earnings call transcript

Good morning, and welcome to the Flexsteel Industries Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. All participants’ will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Derek Schmidt, Chief Operating Officer and Interim Chief Financial Officer for Flexsteel Industries. Please go ahead.

to fiscal to year welcome fourth Flexsteel and and quarter XXXX you, today's discuss call Industries Thank financial results.

which is Investor release, Monday, News and website earnings we market under after Our close at August www.flexsteel.com, XX, section available Relations the Events. on of our issued yesterday,

Chief the provide am and prepared I and then today call today's On we Jerry with Officer. here open to remarks, questions. your call, President will Dittmer, Executive we will

that such the would include similar I like anticipate, you call can to begin, expect on we will comments remind forward-looking be Before today's identified as and which statements using phrases. words estimate,

or on in by report our Forward-looking described include, predictions applicable. in but projections, as Such those quarterly to outcomes goals, conference as as filings materially statements uncertainties statements, from are the SEC and These estimates, that most events. to, risks are that subject and nature, not subsequent risks future of on and by as involve forecasts forward-looking and updated forward-looking and should of relied results speak could be our statements. recent to are those their differ expressed limited assumptions uncertainties not actual cause Form call this date other of upon only XX-Q annual Form the XX-K and reports

release of as measures. press measures. to discussed not substitute and be as to but The supplement for well financial quantitative on may we intended contains information directly measures, to to the refer comparable most are Additionally, reconciliation non-GAAP other the today, the GAAP which non-GAAP the GAAP website available

Jerry? call And over with the will that, to Jerry Dittmer. I turn

with pleased fourth joining I am you and year you us Good fiscal morning, to thank results. for XXXX our and quarter today. share

sales continued the sequential strong fourth X.X% range our within in growth guidance our delivering quarter-over-quarter $XXX.X to third and quarter, quarter. represents momentum which of million, of was the We compared

to and pressure of are executing offset challenges. we headwinds slowing face growth these are in to revenue pricing continue the well, market we and meaningful consumer While initiatives form our demand, adding

Our controlling or to focus the range income our deliver and which quarter efficiency of million $X.X along was continued us and gross enabled operating in growth margins with a upper of expand X%, initiatives, for our operational on guidance. the costs,

uncertainty economic headwinds challenge excited and in our strategic year positive in a of encouraged market I fiscal by While am to remain will momentum year continue impact XXXX. and fiscal priorities our XXXX, the

high Coming XXXX, was year challenging that demand, faced we a fiscal post-COVID which a it of chain glut sales due backlogged was year. consumer exciting to slowing year due yet on but back of were with XXXX meet expected inventory Looking off supply post-COVID demand by very retail to record disruptions. was to in a compounded ordered demand,

reductions prices to our quickly Despite rates time, other year these year. The $X.X navigate forcing to cost executed to of surged. in which ocean significant prices as $XX.X price to fuel by the suit. million remain pressure year-over-year in them, levels, demand normal to return prior experienced higher same prices lower between intensified resulted sales and ocean response compared income plans while container in strong identified to supply the lower to employees pervasive dropped caused challenges, early inputs, manufacturers obstacles began imbalance full And others million and of follow further industry retailers decline the dedicated team in operating the and the in At many competitive. freight order and to

of the the flex brand. in initiatives these solution advancement quarter-over-quarter growth sleep of challenges half our new the already included sequential growth and year of mentioned. furniture contemporary recliner The our distribution growth Charisma It strategic to fiscal initiatives was big-box despite launching sales which solutions expanding Zecliner channel, our created launching see exciting our the and the impact second modular

We continue amid demand levels uncertainty. and pressure to to return of pricing see due pre-pandemic competitive macroeconomic a to challenges near-term

commitment we and growth we to However, excellence invest expansion. our priorities continue our focus profitable pragmatically growth. maintaining that will sales With initiatives are strategic to on drive drive long-term to in in operational to in margin mind, delivering

initiatives I'll the back of I'll turn to for discuss our call we on closing to Derek the now over what the well comments outlook QX some financial XXXX. ahead. end with as results as see call strategic be and our at

to about notably to to highlights everyone. A trajectory with big-box about Costco. initiatives. morning, noteworthy great distribution, most our and optimistic well of With customers few Thank execute and momentum our Like Jerry, you, sales the we've respect Jerry, new feel growth business the and gain continue share. with good I'm built we momentum

efforts box expand the breadth Big of our channel. total faster channels quarter within expected our in and grow fourth our optimize demand of we year sales and the to other this fiscal approximately represented is X% offerings XXXX generation in than as marketing and product

with channels. Flexsteel box, will awareness through different are a across we feel long-term our important, brand big all positive, audience we benefits As building growth which have consumer

partners we contemporary, Flex early launched initially in and wide was with furniture our flex, Beyond; the Overstock, big-box modular www.flexsteelstore.com. own distribution a expansion Bed as homedepot.com; categories, platforms, success make Wayfair; recently and to is new accelerated our selling last solution. In had flex itself Amazon; site, direct-to-consumer of product which e-commerce we've across like channel variety rebranded & which Bath good, small available including quarter, parcel,

retail our are into we addition, expanding aggressively partners. flex independent with brick-and-mortar retail strongest, In

solutions innovating. home store October. innovation the expanded placed in additions planned category, constantly months. new by product plans more sleep line Over our stay in with and sales. with also We've become run. in of product signed have any to plan fiscal the to be chains more multiple up exciting April We sleep next New release our XXXX. is regional a line year and XX an in This ahead will for competition is XXX have October meaningfully anticipated the the has expand initial with strong retailers additional released recliner, developed Zecliner, over

sub-$X,XXX a Last we closing customer To differentiated In brand competitor major opportunity our our price have the the Charisma. their additional also new and expand consumers. operations, of Charisma we cost-efficient bolster in targeting launched are brand, market Charisma's base. quality recently of prices. pursuing retail sofa With younger style the position and preferences gain mid-term, we to term penetration comfort near to an innovations affordable with year, at

confidence coupled beyond. company The continued new XXXX grow success core outlets in investments the our of growth us in profitably give fiscal business and these year our to with

are report, lays at governance environmental, be our practices. commitment sustainable website to foundation found our also have can on ESG approach the our to and and our annual and first formalizes of We This which report matters social proud to business out published ongoing responsible www.flexsteelindustries.com.

difference right can our guided long-term. positive is not belief also thing wherever it We business are to dedicated it's only by the right thing for that but making the we the to a do,

sustainable utilizes our combining to fill innovation new We to line, a CloudLux, made with Sky value differentiated seating are already from practices solutions as exemplified which bring recycled business bottles. product cushion by the market plastic

CloudLux positively our does journey while from water planet three-piece our exceptional bottles only plastic and strategies excited and accelerating sofa impact our prevent We're supporting waterways also helps efforts. we convinced XXX ESG Sky Not every can entering that and but communities growth about landfills. people, through provide and comfort, these

quarter fourth some for performance for XXXX. fiscal first details quarter and financial give on now you With additional outlook the the that, the year of I'll the

fourth the within were For guidance million to earnings sales our million, quarter, $XXX $XXX quarter million, $XXX.X third of our during net provided call.

sales is quarter, represent the our More X.X% which increase strong third from sales of initiatives. of sequential reflects the results importantly, by sequential our growth driven our momentum a consecutive growth quarter sales second and

From the increased a our growth. margin even year at X% range the company the high-end of of of XXXX, income investments strategic guidance throughout sequential support continuation operating and delivered a quarter, quarter-over-quarter in to improvement which fiscal fourth or profit operating of represents million with perspective, long-term $X.X was sales

a Working from in products as we the our the support balance our and additional decrease growth and to to the sheet of million fourth million, $XX.X statement XX% million, company working ended of credit new Moving prior on quarter capital quarter, cash of from capital balance the $XXX.X third cash inventory timing our of a increase debt did the of due to initiatives. flows. bring a of in inventory The receipts, line $X.X revolving balance quarter with heavier were and year. balance the and which

compared have remains pay to balance year, and executed inventory However, we prior our to levels our plan down strong. and reduce sheet debt

a expect We pay prioritize meaningful source fiscal reduction to debt continue in be cash of year further debt. to down inventory XXXX to and

for sales is guidance first $XXX the and Looking million million. between $XX quarter forward,

summer the by purchases months. consumers slowest year-over-year as quarter The first the unit growth mid-single quarter low often entertainment our during said, digits and initiatives. growth our the of of in are year are we favor to travel of volume in deferred anticipating historically as That furniture a result is

elimination revenue of freight compared will year-over-year total the growth. than the in quarter-over-quarter by will drive dollars have most to our year begun the which to growth sales which prior meaningful prior recent the from But ocean to reduce initiatives, revenue subsequent ultimately drag year occurred keep flat. and lessen ocean the and million, offset quarter freight in and more result throughout this $X revenue sales approximately quarter, and first relatively surcharges This surcharges year, expect we year-over-year

and XX.X% in gross first Regarding margins profitability, expect XX% the we between quarter.

throughout Mexico our the with modestly masking margins dollar impact fiscal given operational and versus expected productivity. gains. Mexican presence recent U.S. sales and on the benefits the year is of having expect favorable continued peso operational strength margins efficiency We in to gross the of an our Near-term, adverse grow manufacturing growth our large the is

to and expect continue while SG&A and SG&A between in investing costs initiatives, $XX.X for million our will spend, million We prudently quarter. growth $XX.X the manage

quarter improvement. range with as projecting to will operating first the of shaped forecasted drivers expect of sales operating in income factors. first consumer most The and the margins in improve variability both gross significant a conditions, pricing the in guidance year by demand the continue X% income range are quarter throughout to competitive X% macroeconomic of which be of parallel be percent in and margin We to

flow working throughout opportunistic be cash decline may of at we remains spending in to value. a the is our to inventories levels and source discount with funding reducing if expected of steadily debt, Regarding year. a stock quarter flow priorities our share cash capital intrinsic new be resourcing We expenditures. cash outlook, anticipate for first Near-term full-year price to and the to modest remain capital as significant at repurchases continue view innovation the

range XXXX expect the is The of million. XX% $X.X the effective capital levels of the And We million of expenditures fiscal XXXX to we end quarter, rate million for XX%. the tax $XX range and to debt million. to expect in first fiscal $X.X at $X be between expected in for

I'll Now to turn call on the his to outlook. Jerry perspectives share over our back

Thanks.

While outlook I economic uncertainty remains, growth am remains promising. that long-term our confident

Our deliver fiscal we positioned team's have balance place commitment to in earnings sheet XXXX. and foundations have an to improved and profitable growth us in even put successfully stronger the year

sustainable investing delivering We continuing efficiencies strategic pay are future focused levels profit our debt. growth reduce and through in inventory and operational on down innovation initiatives, to while

In that summary, mindful being enthusiastic face the we're for uncertainty. year while economic long-term and XXXX growth fiscal near-term about we opportunities still the company

With that, Operator? up your the call open we questions. will to

session. Bugatch ahead. will Tower of [Operator Please will now Our from Instructions] question-and-answer question Budd go Research. the We come first begin Water

morning, Thank taking for you. Good Good Thank morning, my you questions. Derek. Jerry.

morning, good Budd. Yes,

did materialized bit it quarter? talk for -- for during and the talk it came look way first you year-over-year? versus out it about can And price units a How as Just revenue little the maybe the fourth quarter? pattern about the the

Budd, Actually, bit June quarter, the slow around Memorial April of to at started really you and were up little we the if Day a nice May and probably pick then Holiday. quarter saw in in a kind look

feel sales interesting. I X% was finished were down growth Unit net year-over-year. strong. we It's XX%. the So like actually total up quarter Year-over-year,

to freight was So all ocean surcharges. amount decline was sales of related in that pricing, net the the which number of pricing decline to large related a

here peak ‘XX back -- is in most remember, So year at in we And you of fourth had our I ago if surcharges we surcharges ocean their you our when were freight months recent QX rates, eliminated those probably quarter. go then mean if XX we peak. fiscal ocean virtually

momentum had our good into So unit the there we're to as in momentum anticipating we big expect But that revenue was the then to related we in that. that growth fact the about unit a feel mid-single-digit year-over-year and and market, growth have positive decline upcoming quarter well. QX carrying

So Budd, pricing most us. behind that of is

of May our it from actions, will freight There that $X in the that's goes we last the $X -- million, on. because We here see quarter will see this we'll of when we of the away. charges some first be year and as took pricing million probably ocean in

thing quarter be So probably up That really pretty being we would was was in it year-over-year. most unit our encouraging. encouraging very saw encouraging, the volume the fourth

I painfully post-pandemic of were much the of during special ocean freight And orders. I'm to retailer-based agree. historically, aware what time happened and your frame. sales

Now there's during lot is more stock. on how strategy, a with on the balance take did that? big-box How it unfold quarter? what the -- going And do see you forward that I that placed

Yes.

really big again, pursuits, volume, kind box. as performance In unit about of terms in retail, both including feel well of, traditional as e-commerce we good our

will the we the alluded us. But grow we're given any our a of for kind we're not to think remarks, in fact is this in channels expect box competing than that, relatively beyond faster kind that we mix. really seeing that, I So well in new kind big both opening Obviously material of again, other channels. of changes probe as

you seeing from you the incoming book? have is What demand country? are reports How retailers can that looking? see their from And your of your from wide better throughout swath order retailers? a You

now, which like to encouraging. year-over-year. really not what's everybody But we Yes, to at all. going both that. especially the is actually the there's side, panicking order seen year-over-year, an haven't are said, if our happen And retailers economic very it's the slowdown. up pretty Budd, going are -- and right about They're be box big are as both so on especially worried retail Obviously, Derek we strong,

we're at So now. we're where right encouraged pretty

Yes. Orders quarter, were company XX% for up total the fourth actually, year-over-year.

So feel we're competing again, like we well.

to, a retailers alluded traffic Jerry us slow. bit is most As will tell that

that robust year-over-year seeing momentum. have gaining order fact and certainly we the some we're we're So would growth share pretty suggest good that

couple a others of let at it. just have ask but I'll some more,

does bit Can with give us a that and efficiencies color like labor year-to-year? walk efficiencies. notable. and Just from material the a -- us or the was gross inventory it color from reduced it margin quarter-to-quarter where operational you those some give that? maybe How the called and progress on little of write-downs, You What's on overhead? look were

Yes.

across standpoint, operational all of productivity a aspects from really Budd, efficiency So made the and our we chain. gains supply good

that's sourcing, logistics. that's So manufacturing, global that's

executing market. fiscal savings. they're just constantly year have a So some we strong great price viewpoint a leaders from all terms those that my concessions and three doing in ‘XX. doing in of each been of that lot job Unfortunately, cost in got They've areas, fund the driving of used to

I'm Budd, So good efficiencies? that And of momentum on front. the part Operational question? second sorry, your

what the you Yes, How margin forward on far that? going see do take level? you gross can Right.

of mid-term, talked get we've to margins is our gross XX%. about Again, or near-term, Yes. our certainly, above kind at goal

really important operational Continued a be will part efficiency that. of

kind the in piece other noted, inventory in reduction write-downs. The that which is you was press year-over-year of release

against demand was some If put reserves you fiscal of lot had that we of slowing. 'XX, We in inventory. QX, remember a year because

simply of 'XX. there comment to negative was as year fiscal relates comparison in fiscal was it a kind QX -- that 'XX, year So

our So of quality overall, we inventory feel good levels, inventory. about the

So no concerns on front. that

forward, we pretty efficiencies second, as think around ability overall 'XX, It's fiscal confident there two-fold. I volume and to feel our the throughout go to then operational big continued continue expand are leverage. levers So and year margins we

and thing there'll peso inventory we'll the good a growth two is and inventory come too, best only in that's us. in of is about obviously there fiscal here uncontrolled this revenue $X as maybe is probably up. negative first in us be quarter thing, this kind our longer moving We right this really, saw in short even really a the year, other will Budd even And are an The term We probably feel the things aren't down. we as goes and to now, peso year the don't continue that the one versus the last million during dollar see term. and direction dollar the effect on having year the $XXX,XXX for

year? end it fiscal about $XXX the you at what's you cash of source to And for of ‘XX? back where the talk inventory end million think see. as frame? maybe time before was what, it, I of the $XXX Do Is it did pandemic the is a goal and -- million

in think that I range. Yes,

little better goal. even would our definitely goal -- that would Our that be bit than a but

And that so would not your debt to get down zero, at funded just zero? if about

is Correct. $XX I goal, that ultimate mean obviously, zero. stated but down to our to it's we to $X million million, get

much. very let others ask if questions in you and Thank queue, it. Got come I’ll back possible. the

Thanks, Budd.

Anthony of next The Lebiedzinski Instructions] Please [Operator ahead. comes & go Sidoti Co. from question

thank and the for you questions. morning taking Good

Anthony. morning, Good

morning. good Yes,

Zecliner impact So when big-box I well overall, you impact look contributed revenue as as know, then quarter of just that how for the fourth for that far as curious big-box think about we just initiatives. Derek, fiscal and flex But the kind much others, as and far at about growth 'XX? how talked you to quarter. should the the the collectively expansion as from outlook the of we think as sales? -- And

Yes.

of terms little million than derived was kind of less a growth from the In quarter, fourth $XX initiatives.

into going feel good year fiscal momentum about 'XX, So the there. certainly we

above growth an $XX another we relates annual As $XX year at probably million here that least would in fiscal -- on contribute 'XX. basis, it fiscal estimate what our initiatives 'XX, year another we million would over to delivered and to

is be annual for XX% hoping, Anthony, to range maybe that forward We're that basis. going of on in rise an the plan that the somewhere

guess, just lower gross this later job fiscal it expansion. get I you XX% there And year? at But can the revenue. that not Or here, you of, above think of little yet? it. point is be for because like looks I thanks doable sequential a for terrific that. do some then upcoming will decrease overall, know quarter Got Yes, certainly, margin bit a with a

obviously, If range, continue it I stronger be we But in the to end that does historically, I here revenue yes. fourth that quarters, million will maybe be second, an would to plan take that quarters sequentially, be think so effect we the of type average it'll close XX%. in are answer by do so year, the first hopefully, upward. above year, But down that $XX to third, and quarter. our XX%. our will the be the mean, will that fiscal have the And for

then as would And good. last the Very level. talked having perspective. inventory retail, as Okay. now as your at know glut retail you about I year to as I hear inventory at like far sense inventories What's a your far levels customers? to your of

we're at or where where are at? from our retailers From

where inventory far year fast As maybe wanted demand mean down. just a of to mean, general, later, feel have, do retailers at. better as started there appropriate much? so year, your big But forward this inventory obviously, get the slow built glut perspective you? from levels I too are I was retail you last a like Or or in customers just to as

question. it's good a Yes,

retailers So most the good strong especially retailers place. our are a our for in part,

for And through, is inventories, lot part, and are bit buy. the our Sales in But what's not sell of from into Of to correlates what's in retailers well down. sharing economic -- hanging good. a the cautious. bit A come everyone way, as and good is are cautious a a our in from place, back traffic the place. course, they are retailers coming seeing comes coming true pretty orders little there little are down. is standpoint. going in store of really of folks people their we're is most which most the But decent traffic caution are an retail good in to of lot most But that a happen

the of good by -- could by fiscal debt hear. That's end Okay. then And fiscal so 'XX, you potentially be to -- free.

'XX. by that, you -- move end you be like say So of the as your beyond what you debt would to flow priorities as it be would free looks cash look

each we will that. products, of acquisitions one there initiatives and one, more favorable course, because Obviously, them Yes. out growth taking things to enhancements, are with at to on those really we'll main The look plan of things of there's doing our but the main lot like our new continue coming with if with be a that growth continue initiatives are two.

much Well, it. and luck. of best you Got thank very

Thanks, Anthony.

session. over back closing I to This concludes conference remarks. the would any Dittmer question-and-answer our to like turn Jerry for

today's and Flexsteel In closing, our updating Obviously, appreciate call. and Thanks. us any Anthony, fiscal all want for that. forward and look questions, We today. in also participating outstanding dedication you if to on during listening I Thanks, their additional thank we performance you our please the everyone, can year. call. thankful of all Great. of contact and you next to to really have Budd for I'm for employees you, participating

now presentation, for you and has concluded. disconnect. now conference may today's The Thank you attending