FLXS - Earnings call transcript Q2 2021 | Flexsteel Industries, Inc.

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Operator

Good morning, and welcome to the Flexsteel Industries' Second Quarter Fiscal Year 2021 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 note, this event is being recorded. I would now like to turn the conference over to Derek Schmidt, Chief Financial Officer and Chief Operating Officer for Flexsteel Industries. ahead. go Please

Derek Schmidt

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

the which then is Executive today's provide Investor today with Our Monday, Officer. News & website On release, we Dittmer, we'll questions. am market under remarks, call after prepared earnings here I closed at January to www.flexsteel.com, XX, will section President available call, Relations the Jerry open we Events. on your and of our issued yesterday, and Chief

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

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

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

Jerry Dittmer

non-GAAP of strong to $XXX today. Sales stores in results delivering the furnishing blistering us multitude second organization solely the morning home year-over-year growth represents organic consumer chain market order net for in remains through related in quarter, furnishings end order encouraging headwinds of The part share especially million, meet disruptions XX% to carried net almost relative in complexity gaining solid year-over-year products global into performance facing our to sales retail home competition. $X.X demand stronger SKU growth joining actions a were GAAP to furniture. surge with very nimbler thank of at and us for time and reduce fiscal of furniture in we year of sold XX% you top taken was we have rationalization income retail $X.X year. recent of COVID-XX, million. performed prior versus refocus lead XX% Year-over-year results XXXX for quarter through And quarter. made a operational robust are that created and for of Good to and demand growth due momentum first in million. by And Despite, XX% the our line the supply second to the and almost with growth quarter. which Overall income of well residential on

for As second record the million. retail a result, backlog level of our at sales $XXX quarter a finished

a disruptions, of ability inventories quarter the supply during was The XXXX first the quarter e-commerce and growth our I'll of product, fourth expand reduction meet manufacturing Sales the capacity which of fiscal quarter through which growth. but initiatives and are strong in double-digits, in this our both call. Our to growth performance of through global accelerate support this And home supply furniture company. XX% determining in channels, the teams in the through second in was be we mid-XXXX, overall consumer our for channels obviously E-commerce fully economic result than demand quarter chain on notably XXXX. expect market the play to we sourcing stimulus of impact to are the and And the with capacity federal to Styles pace the grew to over likely fiscal sold feverishly largely year working and lower chain to to strategic XXXX. higher on growth of challenges year at the later ability constrained demand elaborate fiscal Home e-commerce feedback, a key combined for area and mitigate monetary that throughout these of sustainability coming quarters. Based once expect customer sales. growth the remain will pandemic factor the strong consumer fallout hopefully the few both government a growth continues precipitate through

predictable it are at widely consumer to distributed of to when some demand their was vaccines likely normal begin consumers wane activities point While homes. and outside that return will

In supporting currently exciting to and are We for products softening is demand are overcoming supply the biggest that our working so more which a continue global on growth anticipated driving strategies to such continued company. than flurry new challenges, long-term facing. other obstacle profitable near-term, growth can offset of growth the chain we

supply are impediments three major now. dealing chain right We with

of containers of the of which consumer there availability is combined at has the disrupted in numerous onset ocean of globally. COVID-XX, for First, moment. Asia significantly extreme surging with ocean at containers products the of empty imported an flow shortage containers, vessels, occurred demand the reduction And

derived reminder, products to are of are our from sales roughly XX% a As sourced XX% that globally.

containers full. some forced Many have growing having of production Asian stop business with ramped shortage no near-term. recently place an impact they demand container of as have meet our of order to our suppliers cannot which already be production full to to because now themselves So suppliers outsized on who cases, our product is capacity their warehouses store our are find of been up have Flexsteel warehouses because In shortages. products, the shipped

is soon we be the imbalance how the prior also ocean to In a and not our As our Unfortunately, that now confined you resolved. for and an ocean to of containers margin also are instances, negatively we the imagine, third three chain gross imbalance spike this did chain may some in And times which COVID-XX. outlook. fourth that can freight may is our transportation Flexsteel global creating is egregious industry. or containers pose supply paying prices, impacts short-term. such, as not growth sales to quarter supply just risk clear one issue just significant a It's for amount

international possibly We working our we closely are short-term. with capacity very as as much in secure partners container freight can the to

Many challenge is motion a of due was limited source been our The American the furniture in mechanisms items materials and to at components. second interrupted has our of items. Asia second key of the from flow our facilities key chain quarter supply during by availability the manufacturing I shortages North Production availability increase and to suboptimal these we'll of input mentioned suppliers to since the the beginning which restrict container the Poly our earlier. ocean quarter used in production been significantly all continue constraints the These same our is quarter. are of second foam manufacturing in seating expected product of throughout the ability allocation from to that near-term. material on and has third factories

rate and despite chain facilities in distribution unemployment production supply the challenge U.S., high big third labor availability, across and increases Flexsteel's wage centers. is recent notably The

supporting dedicated recruiting in positions qualified We encounter driver fleet. to transportation and challenges candidates our our continue for locations for

uncertainty during related Trade completed XXX Vietnam. trade Vietnam policies Representative The again, item that harmed we in workers and currency manipulation Section U.S. businesses. call relations concluded U.S. practices Vietnam which investigation its U.S. and by and noted quarter's it's office recently earnings and unfair Another last practices with is acts, of worth have mentioning to

Biden implementing of short stopped has situation tariff not government will Administration It's with far. thus U.S. the the incoming punitive how Vietnam. any However, the measures handle or clear

situation described, near-term. seem chain While with I quite that the in may dour the the global supply just

deterred adversity and all is best Our team support available options customers. working to is our the not by

cautiously that these are six We nine not the conditions will persist to months. optimistic beyond next

growth we for in to continue chain pleased we and global financial In of year strong headwinds effectively global feel and with half such sales to are anticipation longer fiscal first supply to support well, performance supply well aggressively we conditions positioned in deliver are So short-term the competing I'm results I can normalized invest growth summary, are term managing chain term. growth. our longer as as XXXX.

to I'll comments on turn be we with closing see the Derek over And financial some discuss what our Now back operational and ahead. to results. call I'll

Derek Schmidt

Jerry, and everyone. morning, Thank good you,

$XXX.X Second XX%. million sales $XXX XX% through lead net performance quarter in The of during and by the supply of to home our increases quarter alternatives. fiscal products execution million to e-commerce range, sales the year a due the or XXXX. competitive guidance strong million furnishings sales million relative $XXX.X $X.X million our prior increases time chain million period. favorable exit of of to were Despite and or in the product million $X compared results We at partially fourth sold $XX.X XX% were saw our to sold driven of the high million, Jerry hospitality $XXX up decline products $XX.X or mentioned, and end offset through retail of sales stores by were our which challenges, vehicle lines both

This the a in share included very prior a net profit $X.XX expense diluted $X.X our exited or quarter. these pre-tax million bankruptcy Lancaster, and income of lines, income a Dubuque, to the debt net bad that $XXX,XXX per was The million facilities. XX%. product $X.XX gain to reported net pre-tax first million growth second sale diluted record compared million year restructuring Excluding a a was our quarter per customer an and of a Iowa end organic loss of $X.X growth perspective, Pennsylvania and $X.X pre-tax the for reported strong the From in a December. of finish at quarter backlog fiscal expense, supported by a $X.X minus we or due share

net earnings Please Excluding quarter last net cost the quarter compared leverage efficiencies of structural XX.X% volume for GAAP release diluted included to adjusted quarter. fixed $X.X quarter $X.X XX.X%, non-GAAP quarter. non-GAAP sales non-GAAP per range a net $X.XX higher was margin was which in these The points income or basis due XX% midpoint quarter as on the year detailed XXX year second report in percent to second sales minus $X.XX to adjusted reductions, the Gross of in prior the year-over-year three at the net the to share million during per our prior of adjusted significantly XX% gross see million guidance at disclosure reconciliation a the margin in non-GAAP was operational in the of loss diluted versus or the year. as second was improvement was income. higher a second a items, compared to as and primarily and share cost

increased the taken were year primarily higher higher As expected, a third expense expanding to quarter the net modestly percent basis in digital to mentioned expense which transportation our in to the The non-essential to Selling, compared quarter gained inflation, supplier million we by base guidance and million pressured $XX.X quarter those have in our customer accelerated coupled investments sales, was global of be cost the decline with in or held increases quarter. our XX.X% to the million XXX second to and than compared for strategic sales from a and do to future surge quarter. percentage sales year spending related wage assets prior to lag, SG&A until XX.X% due the compared prior point SG&A material bad growth due rates costs to XX.X% as offset quarter. expense $X.X to not second it in debt basis lower DC several ocean Pricing increase first assets, margins expenses response container a as $XXX,XXX of was the the was general offset sale realized a actions in a in previously $XX.X to our with XXX growing as increasing COVID-XX, XX% in reductions administrative and related being SG&A quarter. network. range partially depreciation point due leverage will bankruptcy.

rate of to year or compared quarter, we effective prior effective tax an reported is XX% tax the quarter $X.X income tax tax quarter rate an the effective favorable XX% to rate quarter. million million for XX% benefit to of turning impact or remainder of tax rate from in tax was year in than a the between of the The in $X.X rate during of Now effective The the expense the of to the lower expected XX%. a XX.X%. to our XX.X% anticipated sale assets a taxes, due

line strong $XX moving the million sheet, no ended Now the of balance $XX.X with our on of million onto we outstanding quarter balance cash a credit. and balance

proceeds were million $XX.X companies, million current liabilities decline a due six million $XXX.X of minus in increase The XXXX. facilities. was Our sale operating The in refund, Dubuque, Pennsylvania, of approximately the primarily offset and June other from decrease $XX.X million, increase $XX.X in Capital partially partially XX, inventory. in for to of was $X.X current trade December in $XX.X million, the cash activities by to decline million as receivables decline assets $X primarily items at $XX in of a tax of capital $XX.X cash a working a used expenditures ended million offset working payroll at Iowa, share $XXX.X for and to held the $XXX,XXX. XX, sale cash in repurchases, current million of defined Harrison, in increase decline due a assets of by compared a and $XX.X and capital million in $XX.X December million XXXX due assets to in million XX, months Lancaster, XXXX Arkansas was million related

we During $X to meet fiscal requirements. spending believe and adequate $X those XXXX, million anticipate capital capital to million working we have for expenditures

continue initiatives. We on our restructuring well progress to

year incurred costs. million. We the and $X ongoing fiscal $XXX,XXX anticipate total restructuring million expense, XXXX $X.X to quarter, second the for primarily company restructuring for During expenses roughly transition of of facility the

located proceeds quarter, $X.X Pennsylvania, our of total in total of of we facilities the a gain million net and Iowa Lancaster, million. sale the and $XX.X resulting During completed Dubuque, in

Mississippi are Arkansas. and remaining listed Our sale properties Starkville, for in Harrison,

the due third flow on containers and the sales our on are being quarter best margins the in low and quarter with determinants noted and a margin and basis XX.X% shifting could have said, Jerry container situation containers bit range ocean ocean expected primary in shortages estimate earlier. to to with range. and the Looking $XXX determinant which the both is of and third highly impact quarter freight volatile daily of $XXX and range. conditions is rates challenging container for the source the for percentage. million ocean of for end between largest sales rates, is million guidance the The a gross That dollars and material availability product the of being of high shipped the between XX% of the Gross with quantity a

as be as the to is improve less we volatile and compared $XX second second $XX guidance best provided as a dollar of of product would range, supply make otherwise actions gross expect in which Excluding we benefit investments ocean million we between pricing million and expect capacity to capabilities digital the rates, growth quarter. volatility the additional freight chain the sequentially third margins expect for new development, SG&A quarter quarter to realized the taken expansion. to we strategic and in the

when I’ll perspective remain turn of in chain call income margins work to operating over discussed, fiscal be our the at his Jerry previously supply modestly our adjusted challenges back we near-term adjusted to X% strained on condition deliver we or the While through margins the myriad XXXX year will as confident outlook. share to chain in supply ability operating income above stabilize. in

Jerry Dittmer

Thanks.

into expanding our Business meaningful in insights a aggressively in might overall and XXXX, the the consumer As view long-term consistent the made fiscal President, growth, a potential, in bit a pursuit of deliver team good new business Derek role our supply feel to segments, chain. To new outlined, we’ve consumer New be to to business the quarters margins strategic global realize position will growth. of opportunities out we’re product the instrumental due the growth next evolving and and ability points. categories our year potential to reach situation This Development. have of and new far in so building and charge to lead plan operating term in be with our Flexsteel’s in price accelerate will uncover expand progress the about Vice new chain capacity. confidence supply But few the profitable recruited member of we recently To we’ve longer leadership plans our working take choppy

front, building lines throughout an first the up March both lease recently remainder start in facility production additional which capacity several facilities manufacturing added signed Georgia And quarter. we the initial Mexico should and Juarez, for the in we our in new and Juarez, Dublin, calendar new On to of the production ramp a year.

a Additionally, our we’ve help to more chain. global recently supply retained services expand consulting and exposure supply us build our diversify country sourcing chain, resilient

our our DC not our consumer to Flexsteel of to a better we’ve grow and customers is direct study The future of exciting. expansion improve sales. serve but we to only initiated capabilities rapidly plan, ensure our determine also network fulfillment Lastly, to existing optimal

than a go organization and that every a customers truly of get where clear faster starts ahead. in It to of grow forward an create plan and experience do quarters the in shareholders. have we day. this to aspires a our to vision sharing We our all building up returns With with great to deliver and we’ll to call progress your we When open the questions. will look want there. journey that, I our to more we attractive for market each that, the

Operator

The the question ahead. begin Evaluate session. now Mehta from go first Research. will Please [Operator Sandy of comes We Instructions] question-and-answer

Sandy Mehta

chain talked and supply the with Good third offset implemented, income the and price these And they’re alluded will fully price increases you of those that have morning you. and Several quarter. costs – costs please? in we you the Thank increases companies increases once quarter. shipping costs, fully and other offset increases see some that during strong many other the would performance shipping congratulations to of Would the that that about to said Yes. well. have some on in as price furniture of

Jerry Dittmer

will now. blanks They Jerry And me. a happening fill in is time I’ll can tell right price the and the that all time. is Yes. The Sandy, increases it’s such are behind you why not. Derek fluid this

price at surcharges the price increases both and coming in are freight, putting looking increases but non-stop. We’re for the

And we hoping in, we’re put necessarily that we’re behind. time. continue plan this say doing wouldn’t so some in, we’re some is diminish to we put to what over does I

ahead customers out struggle users. And these marketplace having with the retailers into the end to obviously our definitely are of and on, passing We’re not it. a

a thing. So this fluid very is

pricing once will continue week continue at look but So them the them look we we’re once we we have year, now at a at all need quick actions to at answer no, them to pricing the not is look We do to used we covered, going to. and actions. best to a look

Derek Schmidt

Yes. Sandy, took as alluded inflation, transportation, we significant see labor of in back to November when We’ve fact February pricing started so here early both terms and will that is the materials Jerry both – ocean realized in mid freight kind be actions largely to, gotten the increases increase. freight, continued we kind materials, to ocean various Since March. goods. of rates finished in suppliers additional of freight time, rates, of have that and from

evaluating lag our a But our sense. we we’re and and the from it actually there constantly time is that. again, customers back realized we we makes through pricing work So where those to announced pricing pushing to time that the backlog

side. most the three-month in that’s lag a to cases, manufacturing So two- on

Sandy Mehta

or going so dividends? what $XX at comment with can forward the at of average your Thank stock And you price price? repurchases you special much. appreciation, dividends And look do how million vis-à-vis you repurchases,

Derek Schmidt

Yes.

let second question me So first. answer your

to reinvest. foremost the first deployment and priority in to invest of Our business. opportunities back kind see capital attractive We is for

distribution. We’re products, expansion, product in support, going category to new new inventory sales invest

to in expansion. the and make DC to equipment We’re machinery investments going to manufacturing continue past support and

considerations. of look a consideration And stock capital in tax with our to of investments, Board still they price back value. give we or not our shareholder repurchases. cash. we’ll intrinsic form Assuming share though, relative shareholders dividends And those it we have have Then relates the and higher as dialogue only specifically preferences, share but to after repurchases, to at we constant excess the we to either return make

we So value. Board our with a dialogue intrinsic have regarding the every of quarter view

validate from a update that had that And governance actually quarterly. just we value. view two we intrinsic external standpoint, of firms So

of upon stock it as we business, belief your we’ll of back to a opportunities but invest have in investment significant cash to that terms our around excess a value, attractive and to mechanism continue question in repurchases, is share the we our So the then discount trading kind to depends return the at shareholders. over to cash use that intrinsic have

Jerry Dittmer

the we repurchasing average And this $XX.XX Jerry. that price the and your see we’ve six other per week question at over paid of the an average of price. to The is And shares. you’ll share our is about or answer Q file you the this end the last months asked

Sandy Mehta

you so Thank much. Great.

Operator

The ahead. Capital. next Hughes question from SGF of Mike comes Please go

Mike Hughes

Good questions. for morning. Thanks taking my

more little actually the the just in could of a plan the one, front. I case last start Mexico know Because to peers first labor expansion The announced they producing a some if bit you plans goods number have talk your on about that in capacity Mexico. months few

So is labor that market there? tightening the

Jerry Dittmer

This Yes. is Jerry.

to all different really enough to plants couple things. adequate at be labor not Juarez little a do – and appears us we there one a going more The we’re we’ve from look we to mentioned at I’m parts forward. going, three area, capacity OEM looking is our than for other in One Mexico here statements now with had the and in bit gone suppliers. us really have of earlier So

Mike Hughes

times question, competitors, your that second lead are lead than then resulting have is And you’ve Okay. you in your gain. market mentioned shorter And where which share times now?

you So market how short-term to long-term the share gains share gains? convert do market

Derek Schmidt

Yes.

we desire kind manufactured current longer. cases lead six running out, times longer months or in of certainly competitors but are product XX-week So long-term, our even timeframe, are for in XX- that as in is some state, to which than much our

of competing So my advantage. from still we believe that point we’re

if And of competitive better lead expand long-term. belief our to share that’s to our keep consumers continue mind will we we is the well And down. as sales have gain than we gained, associates, can aggressively capacity how alternatives. perform kind those as think share I to that retail our times we both

Mike Hughes

very you Thank Okay. much.

Operator

comes question JP next The Please of ahead. go Investment Geygan Global from Value Corporation.

JP Geygan

and of on of evidence Derek. you've restructuring strong plans the touched this I of few questions a quarter, question them, is results. your good congratulations Hey, and is your I a in for financial on just think have but aspects first, morning, today the success all think I

the discussed and including in dividends You more reinvestment generally, capital business, appetite you but repurchases, stock address can for acquisition? your allocation

Derek Schmidt

we're I the Yes, very are though significant the price tell is companies much you highly What premiums. still segments, company. an acquisitive would are probably have moment that that that et in at cetera, growing attractive e-commerce, to us

So to we sure path do to certainly, at while any creation. acquisitions, a shareholder that we're we clear looking want value make that have deal would would

of what acquisition on we kind So terms so is our keep that. the sheet, to does And along come have right we'll the be powder to if at balance capability that disciplined in enough intent the dry pursue right we the pursue. of price,

DCs. to such credit, hand we keep like, So to we expand I our And capacity plans between but in back that to think, pursue deployment, our expanding attractive going back supply not returns. in expansion, want I extensively to we continue pocket on only enough capacity available capital talked said, it like areas manufacturing to in chain. reinvest opportunities. feel business the – is our to also cash That includes are here We've our expand that, have about in beyond

capital support deploy those would endeavors. we to And so

Operator

Geygan? Was Mr. follow-up, there a

JP Geygan

Yes, please. Thank you.

into anything I million that speak million into strategies addition, DC strategies, you've falls XXXX. to mind, growth spoken got particularly to year supply of the product your than growth $X can that chain your development? presume many category CapEx you you for particularly fiscal $X capacity, capacity, that You've else your Juarez to have other in of new but the of

Jerry Dittmer

Yes.

us coming One after. our than areas product years, investments. I of we investment we're key and four different of potentially that build a talent the points We're and styling, going the of aggressively that after two going the think to in But past. there's what kind more consumers what invest allow believe our participated to appeal than kind going our channels again, think more got And maybe and capabilities in very gone that categories and kind than to haven't most than traditionally we're to that is sure the gone we've to different And around pipeline P&L I of CapEx. with or to support supply is is segments absolutely in here continue we've in in. suppliers that going talent, aspect distribution, clearly digital really see They're past. alternative to we're products success. growth capabilities. going start you'll of new to, certainly development start modern, new reach and tools And to distribution is of think in you'll think expanded think reach find to area. going as I make rather of I other manufacturing touch, around kind the continue long-term going price We're year we that have the and we targeted attractive sales of transitional to We business. products that we've healthy that consumer to to to to capabilities that critical channel role, about e-commerce we've that to area want chain while maybe the and a talent invest capabilities critical continue to we're to have fourth kind invest grow expanding capacity, our pursuing

JP Geygan

if versus your question in warehouse a in How the any? much can is, Asia lot. right characterize in helps sold a up transit that tied you of versus is now? That Great. stuck Final inventory be short-term available in to

Derek Schmidt

Yes.

inventory on in of year all en increase boat on or sheet, sitting up $XX So a if train. route a inventory you million, transit. looks beginning a at on the like almost either from million. reality the that $XX it's coming The it's the is or water, in from port either Asia boat is a It's on was look balance of is at up our it quarter-over-quarter, the

the in that there. So earlier, a now our just went given to can DCs that we've We've our supply need we to get all orders challenge is in got of got inventory so Jerry we it through right receive lot We chain out challenges consumers. it up motion.

in balance so right the is a misleading we bit So have now. sheet much transit because

JP Geygan

for for Thanks me. That's all comments. your Great.

Derek Schmidt

Great. you. Thank

Operator

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

Jerry Dittmer

quarter. like Flexsteel employees I In all Andrew. would to their the be proud. and service I performance Thanks during closing, thank for second our outstanding couldn't more

executing chain participate on momentum have additional have plan and in updating strong supply to look you today, I please will you and thank profitable call. we our today's for diminish you We in have like reach issues strategic to are ones. The a you to all our thank time Everybody, well. growth. did next We all again. long-term who forward Thanks your and call. of if We out would investments questions, great for continue day.

Operator

The conference you for has presentation. now concluded. Thank today's attending

You may disconnect. now

Flexsteel Industries (FLXS) 26 Jan 212021 Q2 Earnings call transcript