- Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the Flexsteel Industries First Quarter and Fiscal Year 2023 Earning 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.

Now I'd like to turn the conference over to Mr. Officer Industries. Financial Chief Huerta, for Flexsteel Alejandro Please sir. go ahead,

Alejandro Huerta

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

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

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

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

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

Jerry Dittmer

us morning, for thank you, Good and today. joining

the a lot challenges. was macroeconomic continuing competitive solid well as pressures of challenging relieve as the and given pressures million we're able we I $XX consumer million, demand, well-prepared was guidance retail conditions our headwinds of of in pricing $XX encouraged for that of and including $XX.X attempting for million. faced, Our by slowing which were range inventory, to the am to fact above to performance sales driving quarter first-quarter we inflationary the the deliver these challenges

an our revenue, for While of range on to million X%. negative continue spending manage in our results. operating we Near-term continue initiatives delivering choppiness prudently saw also X.X% or through expected our we which and X.X% guidance create quarter our to deliver slowdown of cost-efficiency challenges of income short-term will above was sales, $X.X the in to

However profitability. we to committed long-term delivering remain

on fourth During details facing on is our these focused delivering call today. quarter on our The will those navigating went organization industry challenges is reiterate and will that not challenges initiatives strategic and success. that into long-term the I our deliver

and the to back strategic call comments what results. Derek ahead. over you our we and through details financial takes turn I'll at operational priorities I'll Now call some with Alejandro initiatives before our be end-of-the further the of see to closing discuss

Derek Schmidt

offense. We Thank and on everyone. you, good morning, Jerry, remain

value by where As least targeting committed next and differentiated new we the markets Jerry that in noted, are likely will existing to nine of challenging months, our profitably business to but remain way for can six to conditions customers. and deliver growing markets competitors at growth share we're from gaining

new product categories call, discussed sales and distribution, growth during the consumer for legs: As business strategy we fourth three new segments. our has new new quarter

about year am of encouraged and to by initiatives. and executing the these potential We for plants. have well-defined and long-term initiatives progress start sales each of to the those excited these are plans areas we our I

big-box major distribution, of our share we've Beginning meaningful three year with highlights. retailer who all sell number spend motion and Let of major will few sales categories, this branded new with Flexsteel that a or products a is product me a furniture, made casegoods. a furniture breakthrough stationary

fits sales this of fiscal could XX become we they early and success, Our brand a top with given think consumers year. well their customer

and We capabilities and becomes are investing to partnership. in sustainable the new this profitable long-term relationship a support ensure

recently furniture Next is new new good-quality especially to popular brand seeking consumer segments. Charisma, prices. designed generation We our launched affordable customers, younger stylish serve at

in capabilities are solutions we in comfort that and our great. reach manufacturing of without we've making has these Customer While lower-price competitive our to prowess many see utilized been so compromises engineering points quality these offerings. feedback value-oriented, and

near-term, of our portfolio six including at received product lives. with with our to this initial now. months, already. product Last ever-changing We'll to long-term We company, sizes launch lineup styles a We third growth our customers meaningful diverse The feedback. week for advancements position In vision thrilled excellent of on-trend Zecliner of with every strategic summary, facility solution new recliner is which our and on that and success. the Charisma sectionals Flex, to the sales will furniture people's targeted demographic. but us younger and a parcel for Market continue results solution we new remain have that healthy unveiled are on-track modular progress and are new recently contemporary XX and built flex larger-scale comfortable with these for and right quarter for consumer last furniture might conditions are started we expand sleep Juarez categories. in to products are sofas production We choppy small our consumers backlog orders popular initiatives. of be consists these making

almost we in pressures used us initiatives. reductions to respond will near-term eventually pricing placements. the stabilize. as from to and to pressures are In cost-savings entirely inventory Jerry levels strong the returned retain to to savings alleviate our These these being Lastly, and earlier, transportation and cost pricing price the our keep fund market retail continue noted normal results deliver competitive

of turn Alejandro to detail the cost-savings are and translate additional fiscal margins. that, you on building second-quarter we it momentum I gross to efforts year higher on for the into the 'XX. first-quarter the over should outlook give financial performance So will for With

Alejandro Huerta

Good morning everyone. Thank you, Derek.

For the first down period. $XXX.X year XX.X%, million, prior compared million or were $XX.X the net quarter, million approximately in to sales $XX

August While We $XX than Compared million X.X%. a were pandemic pre the from sales first-quarter a adjusted sales million reduction to demand our prior from onetime control unsolicited the million spending. million XXXX, from ancillary better expense, expense the of supported earnings perspective, bid received $X.X the million offset in prior the share negative the net by in during $X.X for per income share profit million and operating per pressures of better our pricing charges of net The XX%. in other fixed costs, million domestic $X.X guidance charges. to fiscal the as cost-saving of lower quarter largely or competitive down was slowing of which by transportation and $X.X was the $X.XX. to our through call. of were range company in X.X% and our or recorded of fourth diluted From was $XX margin year the unanimously results rejected income initiatives earnings delivered which SG&A excluded was year, and sales, furnishing our diluted provided of first-quarter guidance home volume up sales X% mainly $X.X partially decline income by and SG&A for deleveraging was inflation product our income reduced Gross quarter charges, sales continued percent of Operating quarter. first net decline due $X.XX. to than range income quarter, related X.X% a Adjusted driven quarter was compensation to

working Moving working balance capital represents The of cash $X.X ended company a million million of the The million of and the the quarter, quarter sheet of the solid cash-flow. with capital decrease $XXX.X of cash-flow during of million, inventory. to a operating in $X a $XX.X by reduction management and million primarily was statement balance $XX.X quarter. the result during which strong driven

reduction million. previously borrowings key is XX% debt a we approximately outstanding in quarter or priority, As and by $X.X reduced our communicated the

between million continue on of based in-stock reasons level us will second the to or giving to second-quarter and the declining the million, better believe that for or first-quarter feel of pull-back inventory sales is on our orders results will our quarter guidance Looking-forward, that $XX products, similar were retail $XX than we first-quarter. to guidance, be customers a while glut at

result Next of slowdown our QX the this discussions near-term ongoing distribution The demand optimistic we calendar normalize drag should remain cautiously on with our partners, inventories continued customers be that XXXX. on year sales. first-half a will though of and in retail

second year. begin half However, initiatives to to and we stabilize expect do in quarter-over-quarter realize growth growth our the of the to benefits leading to demand

adversely will demand profitability, pricing competitive continued profitability. slumping pressures with along our Regarding impact

sales near-term in-line levels. pragmatically focus adjust to will be our lower to costs Our continue with

However, grow to to ability long-term. ensure we continue our profitably

as As of in a of the with largest for pressures. sales such, the the of range drivers X.X% second-quarter, we negative being competitive X.X% pricing percentage range the income demand variability to are projecting and consumer operating in

slightly our improve million range quarter, gross from growth weighed cost-savings costs to SG&A pricing half. sales fixed-cost to We by prudently margins If to as SG&A expect our XX.X% in second We upper gross and intend which deleverage Derek. initiatives million by pressures, the down margins year, mid is first-quarter initiatives. improve invest in the offset in in the control begin higher we expect discussed than to fiscal during second XX.X% of as the by to $XX.X the second expected quarter, the partially lower in and the and teens costs $XX.X between should sales prudently

significant our reducing of may cash if at funding Near-term outlook, remains price as the source the to cash-flow repurchase cash-flow value. and to and our spending shares intrinsic working be Opportunistically of expenditures. for expected modest year. pragmatically to debt at decline ROI full-year plan throughout we steadily discount a priorities inventories in second-quarter Regarding the a capital level capital is stock we high remain a view

of We million. at to the the continue debt of million to in forecast XXXX range $X fiscal end our $XX levels

expenditures $X.X fiscal XXXX range million. any valuation impact in is tax-rate second-quarter, of be the of expect allowances. deferred expected we the capital effective excluding For XX% and the $X.X between to of million for to tax XX%, The asset revaluation

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

Jerry Dittmer

of believe We for Thanks. be the challenging year our fiscal XXXX industry. remainder will

inflationary continued to continue lower discussed, pressures the pressure in margins economy, As in consumer slowdown profit near-term. put will demand on the and our previously

confident to presented initiatives, preserve liquidity, the upon our fall However, and XXXX, long-term high on new debt pleased investing with your I well-received to With build allow near-term, am and questions. In controlling during we priorities growth to pay-down solid deliver a costs, point our and remain our will foundation and on call that, products market and profitable us that team while our of growth. open the opportunities. delivering Operator? our focused we generating will opportunistically the cash-flow strategic in long-term

Operator

Lebiedzinski now session. go from, Please Company. the and begin [Operator question-and-answer First Instructions] comes from We’ll Sidoti ahead. Anthony question

Anthony Lebiedzinski

you for morning, and taking Good the gentlemen, questions. thank

So first, quarter? what above top-end revenue was your outperformance the quarter. nicely for guidance Can the the led you to talk in about of the

Derek Schmidt

Yeah.

Derek. is this Anthony, So

sales So we did exceptional Labor see Day. lift during

So our I think, speaking, really performed well. retailers broadly

I also which improvement of we inventories I probably and inventories think, we which to about three, terms saw from. -- some go probably Labor little got inventories a improvement XXX we're think get mean, But quarter months some retail we improving, the saw retailer in helped. we've during quarter But customers, four -- at point saw strong lift really another market but the back to independent I again, our we are a in normal. high here, of in retailer we of Day before just retailer later still seen have bit

Jerry Dittmer

farther moderate, down few slowed did Day Jerry. got bit is kind little the a bit. strong. of just it said, weeks Labor I’ll after of Hi, really see course, as little this A to that, a Derek Antony, is, was we again

folks really of -- inventories of now, left maybe they retail this months we're like would most time. good through. look looking got going the know looks lot their to think by what inventories what folks So who three, four then. down We be was two, And a thought still quarter a need to really towards November really get like that

buyer. lot a the will and depend just So on consumer on the out there

Anthony Lebiedzinski

guys thanks that. Yes, Right. for

like more I sort return Labor mean, so think the do before of consumer And the periods a interest pandemic of I Day. what's of typically mean, heightened during seasonality now was just President’s on part you -- like to business. is normal going Day, holiday

of think going what's So do is those you just pandemic just are habits? going -- back on part just to pre consumers

Jerry Dittmer

at Labor the at Where July, saw saw we it Yeah. Anthony, we've Day. you're seen? absolutely Xth We correct. it of

belief Our we've that those gone before, back just XXXX to pattern. is, in see XX definitely big like we into used times, and selling back

Anthony Lebiedzinski

it. Got

competitive guys then about Okay. Thanks pricing the for And talked you that. pressures.

was just much the how much maybe unit broadly maybe -- you -- And pricing the the can elaborate you that about for just how maybe, that So do impacted impacted think just volume versus quarter? on first-quarter? that declines speak

Jerry Dittmer

Yeah. then we come and I'll definitely will our in saw little bit. I'll bit effect just take have a in margins. little Darren a tell you that, I an

few hit were margin of Our a because that. points

we I lower through to start priced we ocean see taking think to shipping to -- lower the benefits of get be going product, inventories once and to going we're will we're our to then able going freight, consumers. the see we're our see

inventories come -- some down see and we bit bring our more greatly. margin we've here the little next over definitely to really million just a peak mean $XX-plus improvement, need them down their from they've we which through So just months. are I got get several inventories these down to will

Alejandro Huerta

Hey, Alejandro. Antony. question. thanks and This for morning is the Good

Just sales quarter answering versus of higher actually your the categories. seeing in mix other pretty excuse mix versus unit volume stable and -- and variance a mix one-to-one units because saw me, between We manufacturing decline.

was answer So if Derek, actually know pretty to stable. want I don’t it you that.

Derek Schmidt

I the going to thing. No. same was actually highlight

encouraged I ability We've is our lead strength manufactured industry several quarters been we're down business. talking most our by now. about think to for time to what of leading get the

lead consistently four So we're times. at week operating three, production

X%. our actually year-over-year sales If we’re you up our at by business, manufactured look for

seen been I'm encouraged, hit in But have inventory. we've but near-term higher really of sales by more the business. the by the we're encouraged are glut ocean impacted, imported which not biggest warehoused, adversely products, our where our which manufactured only really of the importantly is retail So strength freight,

Anthony Lebiedzinski

to gross the the great in of hear. for about the year. the margin That's of terms then Okay. And back-half comment

You high of kind guiding to to mid teens.

improvement what over could are great? factors the So if go main you drive be that that that'd just will that

Jerry Dittmer

Anthony, that there's our fixed a One of are into is, going few that. Well, deleveraging things be to the costs. driven

and volume, capacity So we to volume. grow need

grows which gross that help that about, on, we're that initiatives our are products as So that should spoke margin. focusing with our manufactured Derek

that's ocean thing pricing to The is going this and us and other swaps impact having through freight stabilized. rates getting

margin to So and teens. more impacting stable two allowing going the be those mid are factors key us to as get high to we see a our to

Anthony Lebiedzinski

And it. Got then lastly –

Derek Schmidt

think going I just is take our which industry as pricing through to Antony, believe the alluded us it's another I mean, going will for retailers, four we was we going normalized margin two, their pressure to Jerry significant back inventories. to work inventory to, months reiterate. take normalize levels, three, Once to away, help structure. them that's to

Anthony Lebiedzinski

that. you And then last here. All for question right. Thank

end inventory So, kind what reductions, the your of to now, reasonable certainly by progress year? it your of nice own forward you fiscal very so with know given inventories will be assume

Alejandro Huerta

Yeah.

what velocity in we're of So, because dollars, again, in Anthony, on ever focused turns. to talk don't terms want absolute I is

our like outlook really on to is going year. fiscal depend for next where what to going look and QX it's goes demand So

we're but and year targeting for over all working XXXX. between $XX -- the somewhere $XX capital of year versus So fiscal reduction year-end of million million a

Anthony Lebiedzinski

All right. Thank luck. best much you of and very

Jerry Dittmer

Great. Thanks, Anthony. it. Appreciate

Derek Schmidt

you, Thank Antony.

Operator

Thank ahead. Global Investment you. JP go [Operator Geygan, question Next Corp. is Instructions] from Please

JP Geygan

your logistics times. other start on absolute for you're us taking and where around a bit container and shipping you a little mentioned good Hey, Can you and dollar Thank cost? my rates impact just give questions. few with gentlemen. seeing sense that I morning, your the of an shipping you

Jerry Dittmer

really buckets, in big two It's Yeah. Jeff.

what seen would So call have we I port-to-port.

very wherever it where Houston, China was Vietnam, from is pandemic. we're to close pre to So going LA,

from The we're going the -- from still that labor distribution centers good high really still normalized. really, is and literally I to really is, several there have customers fuel not excited down really is of the down. port they've high, to come charges, costs the in they've inbound come bad and costs is has our still down, ancillary those months. fast. last come obviously diesel So our mean, just The

are those very very, So high. costs

costs our charges. but logistics make the we've decrease the seen higher, definitely a two total big port-to-port so together in And still

JP Geygan

Great. and availability how a labor bit Would and little impacting about you speak cost That's that's your P&L? helpful. your labor

Jerry Dittmer

Yeah.

I be continues Juarez of our labor think terms facilities to it in availability strong.

we as we our confident we find accordingly. ramp-up, the ramp-up So we're that can grow will business, labor manufacturing to

So no issues facility, whatsoever. stable workforce have -- workforce And then we our there. [Dublin] a (ph) strong strong

see to continue. Mexico costs, are In still a in do increase competitive concerns we this no So still that labor Labor expect year of labor statutory every continent. we costs very XX% But that neighborhood point. at region in pressures. of our the the plus, some

JP Geygan

that focus can on productivity. acceleration statutory in a Yeah. What that? share fair you with of must With you about type labor Great. cost us amount

Jerry Dittmer

we've really Actually, our We slowdown despite all over pleased per measure that volume, all seen quarter. recent XX to good facilities some the of unit months most actually the numbers. our of are are plants the last highs Yeah. of here say that I'm in really, in and fact hitting hitting labor hours kind productivity

the So us the make the earlier, And cost-savings, of market of as in gain. really savings. I doing placements we're reductions work these in that pandemic so necessary terms a we're during to sure some competitive across-the-board, logistics, to price delivering to good alluded and take sourcing that that job to allowing what's that's we we're manufacturing, keeping hard

JP Geygan

price to mitigate you What what are terms you of to Great using and are strategies hear. in increases seeing raw material Yeah. of type those?

Jerry Dittmer

Yeah.

before together were the the So materials. recently the a And materials our the we really in where in with lot has moderate that down we've not is we've come spike of back-down. seen raw little seen have that increases, pandemic, actually way. have A the to started talked and definitely and they're those not really we they our seen big of lot good costs with interesting a working moderated raw suppliers, to and some. though back us bit, everything the labor else a obviously, fuel, everybody logistics It's about but

JP Geygan

think we should we again? of exceed sales How sales? of margin with Great. XX% what at level gross GM terms to expect to words, your in would sensitivity about respect other increasing In

Jerry Dittmer

Yeah.

So and other take let piece then the I'll first one. take other guys the

have in really first we the the is, increase. do will think see of where in stuff and the inventory It's we costs have inventory. I our more have -- with the to piece lot to freight we what going all

we definitely point or a to but high-teens will think Difficulty] we there. As I we going two, should get other it through can up with lot it's of customers that year but part, XX%? see [Technical skyrocket. new of the and year, the to get obviously, on new the sudden Probably up and to I'm This then come next fiscal jump all bump into go go that. a fairly product not, talking a And would and over about see as plan we think not a above that and start up sales stuff, for our the I rapidly, be

JP Geygan

going Derek on comment to was And that as well.

Derek Schmidt

Yeah. volume. your Maybe sales regarding kind of question

I think well. growth to improvement really initiatives. feeling We're margin about pricing pressure nice good a see Jerry We'll answered as starts the it alleviate. here our

to last mentioned call. going to sales grow at earlier North which I here feedback is to extraordinary our been be on point our We've That gotten Carolina quarter-over-quarter. in new the sequentially we've which our continue seven I So lever really products, days. high in market

the economic able And continue my XX% of deliver think that belief, gross of head as we're grow really to significant we of -- in the plus be second-half that fiscal think do leverage So kind the kind well-positioned I 'XX. inquired get I to about. business and if year we'll we to into you margin into that, absent sales slowdowns,

JP Geygan

to time. et Congrats new share, challenging Appreciate market cetera. arguably in it. what a opportunity Great. products, like introduce It took channels, has sounds you very, new as grab very an that really

like the all So, doing luck. perspective Good it seems you're from right our things.

Jerry Dittmer

Great. Thank you.

Operator

Thank you.

Deysher John Pinnacle. be will of from question go Please Next ahead.

John Deysher

plan. morning. the I about taking new Mexicali for my just Thanks question. Good was curious

just quarter wondering learning there where was type -- any the how to costs in that's that the first embedded think that And third in and set results? quarter, open in going? this I I were quarter was curve results

Jerry Dittmer

that delayed actually asset. we've in the John, demand. given view still of opening the strategic the Yeah. slowdown facility as We long-term facility a Mexicali

growth instrumental growth. And As plans that place we the goals, have initiative in talked terms having long-term be and on in achieving believe the we've of about, have those. we to we going is ambitious deliver in Mexicali the long-term capacity to

However, support ample we given in and to facility our facility growth. have Juarez Dublin slowdown the capacity recent adequately demand, in

meeting So Mexicali our the of up of we timing closer when growth really acceleration and is going just it's dependent get to we on start when be capacity. initiatives the that

John Deysher

Thanks. or there you own Okay. Do else the land someone –

Jerry Dittmer

leased. That is

John Deysher

started construction any on that even plant. has And

Jerry Dittmer

It building need ready is that and occupation a ramp-up completely the is we once done to leased feel we capacity. for facility, the

John Deysher

Okay.

since it correct? operating, depreciating not it’s you're not So

Jerry Dittmer

We recognizing are monthly lease basis. costs on a

John Deysher

Lease costs.

not But on building itself. depreciation Okay. the

Jerry Dittmer

any No, we installed have equipment. not

John Deysher

Good. first is, the other And -- the quarter backlog third question equipment. what No end at please? the the quarter, is of

Jerry Dittmer

which Yeah. to end we're seen and million at by historic low the pre-pandemic And again, of would be at of we'd go back that of mid-XXs in sitting be end XXs, the backlog norms back $XX is the expectation quarter. the to the norms. We've our year somewhere backlog sitting to

Derek Schmidt

competitive I is the to on consistently grow week catalyst four manufactured the industry. that we continue -- in our why production times mean the key feel we that, our as It’s backlog good -- probably for thing of was business. the delivering are lead we which most business, manufacturing the about our still three for portion our to

John Deysher

Okay.

luck Sounds going Best of forward. good.

Jerry Dittmer

you, Thank John.

Operator

Dittmer closing Please Jerry ahead. to call Thank over go to I'd for remarks. you. question-and-answer the our This concludes session. like back turn Mr.

Jerry Dittmer

during In like employees again Flexsteel and We're up performance just first all would here. Thanks, for to I Great. the our thank outstanding closing, wrapping quarter. Nick. service their

this point, we in high market here fall. had As point really still mentioned, Derek a are really, high good

set-up spectacular, showroom it Our look for great selling. really was

are products all we're, where lot made into I and just Latitude We've of can excited in good back-out these to flex with today's market in think new excited recliners investments you things. Charisma, about take Our really looks participating a sleep like it all thank Southaven calls. these solutions, and the all would our about getting fantastic we also pretty company. for new the

and you look-forward on you If great next out feel have updating questions, reach to more all our Thanks. day. we have obviously, call. free to Everybody a

Operator

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

disconnect. You may now

Flexsteel Industries (FLXS) 25 Oct 222023 Q1 Earnings call transcript