FLXS - Earnings call transcript Q3 2019 | Flexsteel Industries, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning. And welcome to the Flexsteel Industries Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded. to conference like Ms. over now would turn call the to I Case, Industries. Flexsteel Relations Donni for Investor Ms. Case, is the floor your ma’am.

Donni Case

XXXX Thank today’s you, results. quarter call to financial to discuss Mike. Flexsteel Industries And welcome third

today’s we earnings the available and Jerry www.flexsteel.com management Dittmer, today then is Investor call under issued Our and the Officer. Hamilton, which after close Chief I April will on our yesterday, of we section prepared Officer; call with Events. provide Chief Marcus remarks your market Financial Relations News questions. to Executive XXth, Monday website On will here release am and open

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

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

over to with as press directly to to financial website substitute the to be Jerry the measures. but Jerry? comparable refer call and to discussed that, the And measures. which supplement The contains quantitative non-GAAP not available on management intended as the turn of non-GAAP are measures, well the like release the information may Dittmer. most other today, to GAAP reconciliation I’d for Additionally, GAAP

Jerry Dittmer

joining Thank you us today. for

have held that in the is conference memorable know, all you first As history. we call this

First, not the we quarter today third that recognize results reported are we acceptable.

the once from delivering financial potential the We in puts distracted also reflect will tackle don’t issues brand. think our the have his hallmark that takes remarks. Flexsteel is and Flexsteel’s all the we of experience cover operational performance outstanding that customer of the Marcus they us

For on now, to want top management focus of of and we Directors. priorities Board our the team

Our a key advantage and first experience creation is pathway growth. priority a to is the improving which customer and value competitive

committed investors. will capable Second, my everything, the industry and since familiar recent furniture was raw the its challenges, year, I we levels beginning company headwinds contributed since the become the CEO have joining of by operations, Flexsteel generating underperformance of to knew a to been the communications over facing a with XX with wide have some eyes transparent our spent our which are role are company of and large my era of executing such on customer had inflation. profitability. took new business and first that the I as with of facilities for part promise, stronger today new of evaluating I finally, tariff days I people. labor and the we material, a the manufacturers lines, in I different career, open. all And At

opportunities. has and our a Concurrently, with Flexsteel with approach visited key of operations and mind at viewpoint Our to and have been open an met I with look folks. Marcus growth future

to and years. good been of another have team want many Flexsteel XXX Flexsteel around have be they many with We a whom years

our company. have entire open insightful embedded We many collaboration our value of with see our the Thanks of had stakeholders team. conversations also can the who to in

a time. a learned We lot period of have in short

a being in It Flexsteel. validate able industry approach. to with that legacy positives was has some drew to the of business customer me the touch a high competitor centric I strong XXX furniture of First, year-old

We products, comfort. Spring quality is Blue offering and known superior for the patent have great

a achieve customer have to large We and diversified base, working for reputation success. mutual a together

generational rock priority. long adaptable history for innovative solid all execute of continue. execution if and changes number to with one are Flexsteel our elements shareholders is consecutive have nutshell, a dividend which and sheet our we lifestyle balance we of XXX a through and In plan the payouts, to success We quarters we rewarding has

that’s As investments. we our years some invested of to returns. unwind roughly yielded have very be those five look over we last challenges the face, to of the Part path million the $XXX anemic will forward

near-term to very need that implementation areas specific competitive more customers, some first and are we the is ERP tackle the unsuccessful obvious that caused issue resulted our The already channel. that Flexsteel This identified addressing. a distraction business be in to make losing step in valuable a addressed have to and immense We e-commerce in especially company. stronger and one is

across structure. inefficiencies identify our need evaluate vigorously cost We The cost second our step to is all businesses. rightsizing to

strategy. we who sure to that higher strategy to execute past Fourth, our A be I have standard to choices make tall of manufacturing outside improvement hold our efforts step a proven companies big third evaluating centers. track cannot for on drive and accelerate level in optimize be well the need resources. to a record distribution performance possible and we engaged we plants The finally, resource and setting accountability to and to resolved profitability. as drive growth processes we and -- improved order our have talent operating set investment that quickest discipline, shareholders. must helping these the indicators our and we performance. enhance And key for assets, from plan It’s way physical without as our will as part value long issues and without right AlixPartners in have know experience is a ROI side creation execution Therefore, both the place ourselves and our of

extensive expertise these capabilities, started on and industry their already all data push have fronts. we ahead analytic With to

and have a can for to cost key investors Flexsteel now with little is been with from our right goal sort understand more optimize through very patience collaboration many processes. ask business purpose, and with steps key early that our AlixPartners. have can we to we so strengthen patient and that share initiatives discipline our mutual some Our We we

Over optimization. product the costs of operations and and XX customer past network streams days we key planning, and sourcing six into areas completed opportunity four sales work global jointly have walls thorough optimization, procurement, and SG&A and and on logistics and profitability, diagnostic productivity, formulated operations that address a

heavy and work execution phase, independent are stream. in oversight of the into sequencing involved We a of and I entered each have planning and now which directly Marcus

and Although, too marketplace, more from moved a specific we any couple to early it’s announce details shortly. initiatives to the execution of planning follow to expect to have

As nothing process, through we is sacred. move this

capable are we We front looking back delivering. profitability and to are of achieve that to the growth

a XXX is you ourselves, quo and preparing years. and the are foundation planning value fully the When keeping to our We our our committed challenging create are complete up we we informed execution progress. status and deliver on we and process reinventing all to enter strong to for to next ahead shareholders metrics as our phase, you release if keep will with cycles, relevant appropriate, announce our our to to When providing you progress. progress, date our informed of news well even track and quarterly timelines on as

and early overhaul. Marcus to financial our of turn call Now to some over and the our discuss will stage financials implications Marcus? I operations planned

Marcus Hamilton

earnings Jerry. you, to Thank for first joining thanks on us And everyone our call.

on As Jerry focused business value-added activities the third the improved trend and are deliver our satisfied extremely indicated of are results. we not with nor quarter results to

Let me bottom the with start line.

of loss in of quarter. $X.XX $X.X million For a the per prior compares net year net in pre-tax third $XX.X SAP, detail. income to which $XX.X share plan of diluted a charge impairment a $X.X net excludes charge pre-tax or per loss million, million reported defined reported share a I the The discuss quarter, will system termination that ERP diluted $X.XX more and benefit we million of or both of

in for like adjusted our of Remediation to diluted year per Environmental to a would to our as charge down Excluding the sales to the XX.X% compared million $X.XX XX.X% year share $X.X minute $X.XX quarter. diluted down ago, Net XX.X%. or business. a and XXX a down give for million net third quarter sales on or per were XXXX of residential the of year-to-date unpack net million, million $X.X I results the we reported have ago were in take more were adjusted of included residential these the faced $XXX.X underlying quarter $X.X performance context in and income Order. quarter share, Circular we income The compared and adjusted pre-tax contract sales challenges you expenses,

some and includes channels attributes. two primary distribution Our residential business unique product of

and ready-to-assemble sold under the are distributed fully our home brand our retail assembled goods flat brand warehouse. consumers ready-to-assemble through directly goods traditional in from our exclusively furnishings basis, upholstered end Styles Conversely, are partners. products the case are both In products and quarter through and products. home our year-to-date packed our exclusively sold on furnishings and our case Flexsteel First, distributed and Home sales a the partners e-commerce to down shipped under

indirectly our XX% year-to-date. discuss million majority year-to-date nine-month sales decline down basis the of disruption products a and sales sales ready-to-assemble total and approximately the either contraction $XX.X let’s in was down or ERP significant by XX% period. just are represents year-to-date residential of and the caused In by implementation decline system. this of the the XX% represent total A over the XX% of prolonged products. on and in First, These quarter created the approximately dollars, directly this in

this rebuilding quarters, partners to consumers. has Over end the credibility ERP several and focus e-commerce with stabilize of the part past business begin and in system the course of the our our been

the improved channel a required in will experience successfully While the levels. it sales to window, orders customer we previous shipping while we have the acknowledge to and fully within return take taking significantly by

page. to typical on April, have experiencing and end, Home brought story talent promotional allowances the top results. are we of ready-to-assemble the the the experience Styles E-commerce position earlier the revive deliver channel the we Flexsteel. e-commerce pivot in at growth business, business, tremendous was opportunity back the that leader right we furniture us to an To our in renew addition, ourselves for deep of new once category the In to a as an important of higher for area work discounting area than to and is place and with to in

If you of and you tried best-in-class truly these They products quality, the have category. products. the would are our within ready-to-assemble Styles by be not impressed look feel Home

products customer win home the category, were Home furnishings, confidence. is operational designing Pivoting channel to leadership efficiencies improving value in Our and bringing sales and team enhancing and this market high this capabilities for largest back our our Styles marketing X.X% X% product under to new to year-to-date. focused down quarter on

being are China. our sales roughly our home where understand are approximately sales to from XX% company’s important furnishing sourced it’s of sourced, In are from sourced our environment, trade XX% current of the China. specifically the Given total sales space

seen surcharge of the our products of followed implementation of softened continues weakness in in a We home for to overhang from XX% furnishings increase categories has to This and this business China. had in tariff believe potential sales September impact in on due the demand largest Therefore, late the has have have to February a significant the order portion we by a patterns. clearly through tariff. adverse an sourced

With we have in pickup uncertain but a lingering, the orders. hold XX% seen on outcome tariff still not

ordering are to are we believe current to in see China. successful, future patterns. the policies at impacts transition new productivity a floors. additional opportunities, In talks saw there in we However of XXXX point base hit for our trade trade of the show the with April determine products are hoping orders available Market be retailer the rates U.S. products mitigate demand significant in to we supply the in actively beginning meantime, Chinese fiscal the increase executing upside the sourcing to alternatives to invoked when addition by order and we to could and If this increasing excitement and what working U.S. early are and on and high current

to outcomes. risk business before, we tariff significant our said have and is As the financial a

business. to steps as quality. Contract the as and best quickly business continue monitor possible insulate We jeopardizing delivery like our as and pivot I’d to without now to or take to

some commercial lines and seating, different up think you this First living of for senior product made healthcare, our everyone Contract the is about part context business vehicle office. of as hospitality, business,

the and of subscale poorly over in A As earlier, potential couple do at have this ability due The value. being of opportunity lines have to we investments these have context. market looking potentially to offer been creation added placed understanding proposition the determine ones are costs increased business to lacking due and for have the these businesses comments Jerry struggling our customers. his value most offer value which period to not. absent mentioned de-prioritize all which growth dynamics, the product and which been to been with a challenged compelling year-to-date Others consistent results profitability

primarily the were the major the exceptionally had strong to growth catch nuances, continues some up demand year-to-date. XX% in Vehicle there for Within over to a products seating hospitality a quarter where just quarter prior up comparatives quarter-over-quarter business in backlog see due we strong customer.

commercial building with pay greatly facility the relocation change the new cost to strong Flexsteel structure in focused in and a The with the declining together hourly primary led structure the the is market. preparation seating veneer, However, ERP fixed product efficiency manufacturing both which facility, offering in heavily lost the and business demand category losses in to of terms opportunities and factors work, the our suffered delays. These by has to had office delivery at is driven costs. vehicle subsequent implementation structural that exceptionally

with couple success. the years Over both past there improve customers profitability effort some to been product rationalize an has and to of

senior for a net year healthcare dampened the basis the sales raw profitability few seeing Gross for capabilities to primarily third productivity a and XX with of be a like to to and our costs talk compared quarter this a as to market add believe XX.X% of its a as increased Labor and focus resources and I’d for manufacturing living When to added and polyurethane to but productivity to furniture to us which with year relatively XXX gross existing grow results accounted and margin, compared the points in which today the to to Flexsteel we quarter, small attractive. percent decline ago. for material when increases sourcing to XX.X%, approximately XX margin. inefficiencies through very primarily take in compared in for Lastly, a our basis now margin minutes profitably our leverage category as even area quarter, is was These margin. due quarter. associated to category the facilities value we in one-time Raw opportunity material to another manufacturing of development. in XXXX, very Dubuque points productivity our positive margin are points one-time Dubuque improving expenses Dubuque. accounted increases Outside as increased of steel the second excluding abate. compared see as and only of of continue facility basis relocation costs we second our last is compared is

XXX XX sales which certain standards adversely margin as ASC of the a the codification for impacted customers when anticipated in points contracts approximately rebates As by classification revenue ago. requires basis a reduction compared gross year to accounting

determined. there this will comparisons impact Please we from quarter forward. have we then were compared where purposes apples-to-apples net will As the and and remember previously remaining XX.X% defined have a predominantly third system on for unfavorably the to ERP in We year comparison to did correct we year settlement costs costs, prior XX.X% by next basis Furniture. non-cash further a Selling, this charge general the it implementation expect XXXX. quarter to that related year-over-year reminder, quarter, of one-time took is SG&A one until not more relative expect quarter of $X.X XXX due subsidiary quarter. in impacted be of DMI benefit prior quarter of administrative ASC a quarter This to is year-to-date associated which termination plan. and further support adjustment third the versus XXXX wholly-owned expenses prior the the increase misclassified direction with to with to In in continue sales fourth XXX associated The charge any of million rebates. also this we points plan do ongoing the

enhance the key several management. programs marketing and experience, to analytics increase data support cost to Secondarily, content customer

rebates we expense in in the help in a classification partially due compensation which increases to The kiosks favorable our this any out certain comparison in furniture One XXX, in from consumers were been as quarter prior underperformance. the of ASC as projects were comparative reduction a Again, impact their first XXX. product classified quarter, SG&A we journey. sales fiscal year expenses have current quarter. the due resulted in on our in rolling by in-store the lap quarter of financial reductions to and offset of that beginning will incentive buying Also ASC the XXXX assist showcase to

in on impairment elaborate Now, recorded we quarter. more charge let the me little the a

press As significant our I charge that level XXXX, system we million in for and completed to-date. and the of an penalties of in significantly release, disruption reductions. implemented roughly then, XXXX the late volume on we April mentioned customer calendar has system in as which and environment XX% began impairment led we it the restoring in on recorded experience, work stabilizing business project resulted Since $XX.X business when stated ERP improved. the focused and have customer to service This

also of future evaluation potential performing usefulness for the the We date, not are amounts determining software third completed resulted ERP which that have revised components due to and was was its been a or the our in work the impairment an that $XX.X capitalized quarter projects system to there of recoverable. during million in context and the abandoned completed analysis incomplete assets This goal. of deployments of thorough

to asset million ERP XX, system $X.X book March XXXX, of As value. of there capitalized a in the net remains related

options would at without look not the to overcomplicating further as for in we subject be mentioned option support past. system a the system comments, million Should of keep ERP solution we impairment, our is in requirements Jerry the situation. will done had $X.X overhaul, remaining the his the the best will business long-term current of fresh we the infrastructure beyond decide and potential proceed our undergo to we with taking to asset As the rollout that the we implementation, any capitalized of apprised you be

year During The losses. associated of impairment in million the was quarter, rate tax of the a an primarily of $X.X the effective of we a reported an tax operating rate expense or or to XX.X%. effective a benefit net XX.X%, $X.X compared a tax large benefit tax million of result charge ago

Going forward, to rate range in be we estimate our tax the XX%. XX% of to

the from turning $XX.X during in we quarter million generated from quarter XXXX. A for equivalents nine-month balance the the XX, million during manufacturing used $XX.X $XX.X our This cash of with ended period million at and sheet, in and in investments. expenditures Now million of was to cash cash Dubuque. capital and is new $XX.X majority down the $XX.X June operations the including cash million facility

$X.X For expect expenditures we of million. year, the approximately to balance the be capital

forward million be we the associated run work can normal excluding Jerry that, turn any to take operator year. per capital a expenditures call $X Going rate activities the With around expect would million mentioned, so $X the I on back to with we will questions. to your

Operator

Thank Geygan go a you, Please Global sir. ahead. have JP Value from Investment [Operator of And we Instructions] question Corp.

JP Geygan

call. few your on of thank a Good Hi. questions. valuable There’s a and you this morning lot time. for I have information

growth under was of was impression of I business. to ERP the somewhat First, facilitate the a necessary new that the implementation the system

selected, the implementation you ERP either of complete you plan to have your not the how opt complete that or adapt technology to already infrastructure? do you partial If system

Jerry Dittmer

is Jerry. This Yeah.

options. at the the options all So are Those we gone remarks that is of on SAP about other options. platform that one that include during talked or we have on could our current continuing looking looking of our at we prepared things

at. other looking options We have we are several

going in continue assessment XX are look make on other plan us. the to is are to days where Our that or available to that to the at next they options

that. of on not options able not we that’s One the will stay to we platform, not acceptable, be current do will our

JP Geygan

a your the to what these issues? been through qualitative And as work your from basis reactions the has then customers ERP of system developments Okay. you with

Jerry Dittmer

is and I we in So live best measure e-commerce lose only guess, we customers. really qualitative our have some business, the we did gone have

the process them in of now are back. We bringing

able to The We because to same behind et are inventory, our shipping just back now trying thing are we get are is live. what before us do are right we to EDI, we ship, they you one right some order our we and working those when went those back. don’t disappoint obviously were Most are through that cetera. now. we That’s working also through back, customers come of really of customers

JP Geygan

you And a Great. that and really into assess question Jerry, have do the I you final you in months you I’d how some few is, job new business now, of my in brought make hires a progress the changes? made you note have are state the the then, presume to few help

Jerry Dittmer

Yeah.

low I I improve it’s we that we opportunity So, knew in. There through. am came excited, had fruit going we We ourselves. really the to hanging some mean, obviously something is are

We We have to changed person CIO. our ever in folks some in first out, head a manufacturing. up brought management brought new

that’s working some the And we a got of have through business. of group the us to help new the AlixPartners brought this. of areas other reason in with us that’s some We other on

the look and company, like months see in really days excited excited are look to are what to future now. We the XX for through and the we from XX and we are we about diagnostic really months XX

JP Geygan

your for time. you Thank Great.

Marcus Hamilton

Thanks, JP.

Operator

well, seeing, questions. further am I no Instructions] [Operator sorry,

for We Jerry then closing I Officer, question-and-answer turn conference conclude Chief to the remarks. back Sir? will call any Dittmer, our like Executive would to now Mr. session. over

Jerry Dittmer

Thank as our their you. for support effort. our employees patience, their dedicated shareholders to thank I thank and as want for well

today. we As back outlined path profitable enthusiastic capturing at our growth. on we about very optimistic put to the business to a and Flexsteel I opportunities am work together

our while Our value customer shareholders. experience unlocking our improving committed fully for our are leadership to team Board and

making. with for call. thank Thanks. share call. progress you participating until news, in in As today’s meaningful I next not mentioned necessarily a we and wait again quarterly continued conference on earlier, communication way you to if are timely there is we look Once the We the will forward

Operator

also. to may and the you of sir great time the the your disconnect management the Again, care Take this a now has rest concluded. also time we for you you. call Thank And have day team At conference everyone. and thank lines.

Flexsteel Industries (FLXS) 5 May 192019 Q3 Earnings call transcript