Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to the Flexsteel Industries Second Quarter Fiscal Year 2023 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Alejandro Huerta, Chief Financial Officer for Flexsteel Industries. Please go ahead.

Alejandro Huerta

Thank you, and welcome to today's call to discuss Flexsteel Industries' Second Quarter Fiscal Year 2023 financial results.

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

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

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

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

Jerald Dittmer

on consumer initiatives to second spite which in strategic of helped joining macroeconomic was initiatives guidance ability as for for of in you pleased I gain I the deliver growth market, have share the encouraged high our our challenging to and thank the of by the posed am with made retail offset us we environment, sales our progress challenges quarter and us today. range and the in our by the am demand. morning, In performance waning to quarter. allowing partially $XX.X million, inventories Good

With offset cost-saving pressures costs we $X.X operating pricing level, income prudently and on and to initiatives demand the million. manage continued our competitive deliver deliver inflationary spending, softer adjusted to of

As to previous debt, discussed down working balance efficiency further sheet. paying in are strengthening our quarters, we committed driving and capital

have In macroeconomic During industry by second we our were successful making headwinds both term, the $X and in outstanding we the a improved near strides pose challenge capital million. $XX.X quarter, by in million reduced to working as debt growth.

However, our these pragmatic growth organizational in product structure, resources We to to management, sales of pursuits, market sales our delivering on remains support gain and making development reallocating resources share the and and plans. long-term growth, to support engineering. are realignment a in investments announced adding expanding leadership commitment force, dedicated recently expansion to new our profitable more we investing

on priorities strategic with before our Alejandro back end of the be turn the our the an to organization, ourselves to the positioning focused now initiatives. initiatives you through operational closing results. the are on financial current and further I'll to details our in environment some strategic call on discuss challenges As of we navigating at deliver comments I'll long-term ahead. we while takes over call see what Derek

Derek Schmidt

Jerry, you, morning, everyone. good Thank and

to committed emphasized, As firmly our growth are plans. strategic we Jerry

uncertainty, and scaling up are current many furniture for growth. but resources responding investments, economic Given we're the gearing by manufacturers back

Jerry upon to recent but growth. prudently stay flow highlighted on growth the some like cash [indiscernible] earlier. are and nimble, expenses we managing and investments the I'd remain future expand driving investments are We for to of

Business experience FlexSteel's market. innovation Development. accelerate of products has will our models, realigning and his leadership new Flexsteel incubate been a and knowledge initiatives. new brands, of President, ideas expand and XX-year that Tim areas to his Tim and leverage growth business the new fast-growing Newlin, are who In industry furniture channels veteran the deep in is profitable Strategic role, of structure we First, accelerate named will to Vice

Crimmins expands of our leadership responsibilities Product. David President big strategies driving his our Sales as business omnichannel and e-commerce. for across retail, responsibility Vice has David in and core box

and rate. of strengthen Additionally, he improve the and success to will new our to integration market product our sales speed product teams

major are we investments each dedicated sales strengthening Second, X to of resources and our channels.

market channel. our Retail Vice that recently we created retail is role on new President, channel, Sales share continued a For in of in example, gains focused driving who solely

We promote retail and gain XX% team share. relationships field are sales expanding by to over also our stronger customer

improve we've a to mid- our to customers' late CRM implementing committed to XXXX experience. by new And solution

the We e-commerce box are well. similar and to investments channels support making big as

changes competitive lastly, more of increase development these we product drive and are profitable in our the substantially and engineering speed growth. new Third and and make in will to investments and structural number investing product both us the future. confident capacity collective help We're launches

Now our second segments. distribution, one, turning accelerate X sales legs: X will into of new making solid X We're year. our progress the growth fronts, to potential of these initiatives. pursuits that new strategy has product new growth new for Recall X number and the consumer the business on half specific and all growth categories

year account will a few meaningful we've top made highlights. X for distribution into with top major even Beginning a a a Let potentially become and me this sales XX big-box customer a distribution, us. with share entry new who

goods Charisma furniture set brand of launches as some and year, furniture, to year the Flex, of tailored and are categories: new selling this such that to this offerings case broad a span exclusive them major products our include this of our Flexsteel all will X motion We product and retailer. products stationary major

retailers, year. meaningful scheduled half several could fiscal We also next market evolve in big-box tests have the which in second with other revenue large the

been quality, the Last year. will we designed affordable sales in extend stylish Next half good Initial has especially and is Charisma our of seeking popular good, e-commerce into segments. customers, at distribution Charisma, and we furniture generations the quarter, big box new consumer prices. the serve brand, launched of new adoption retail second to younger

and the product Development for underway High expect offering contemporary modular We business flex several with different solution traditional our frames across to on available people's new this our April retail, ever-changing distribution will across third quarter market. innovation, product big received upcoming built product. e-tailers X already our customers. track design show to smaller be patents protect for this filed we platforms, is sale remain and all stationary including of lives. Last Charisma, box quarter of categories. and Flex been well to we parcel To Point small is has at channels of for and the a utility expand new direct-to-consumer, launch Flex, furniture both

deliver quarters. growth well, product operational are excited to expect distribution that we're and emerging we recliner, both and begins strong about savings fleet leader in sales excited adjacent is shipping to is decliner, product this overwhelmingly we which The positive, channels. up decliner meaningful strong our in driving offer in customers in to this from for on initiatives, From coming the viewpoint, and to been ramping solutions has these initiatives. service for cost other executing strong new we're product space. and see results results maintaining already enhancements, broad feedback a across near we make term continuing organization March. are levels an extremely the retail and and is Development the our category focused to innovation health The sales committed traditional wellness additional to progress and intensely Customer in

pressures. the In being savings to near reductions term, to price these fund respond are competitive used to

won't completely, pricing year improved the pressures retailer in we expect half the these manufacturers' both inventories and environment the fiscal slightly. second to improve dissipate modestly do While have of since

details of for to to expect on outlook quarter second the year more we efforts line. our result, the 'XX. to fiscal bottom quarter savings that, you fall over I'll the a financial performance give third of and Alejandro turn cost the for As With it to additional

Alejandro Huerta

everyone. Thank Good morning, you, Derek.

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

were in our adjusted of call. second the sales prior company our $XX guidance the $X.X income quarter $XX operating perspective, delivered year, first a our during the of While earnings down $X.X or quarter, provided of $X.XX. of to million results from recorded income We X.X% From earnings profit million was within of range or $X.X net negative guidance diluted income our sales, million the X.X% and within quarter. million which share million operating X.X% for of of positive to per

fixed competitive largely $X.X pricing reduction costs of reducing charges. compensation the from benefit income the per charges, control year the in XX.X%. to and related diluted expense which and offset volume million, SG&A Adjusted of second was $X.XX. X,XXX litigation by prudently ancillary Indiana point deleveraging was a basis domestic of adjusted The supported also managing sales navigating pressures. percent was settlement and for the partially of through transportation income -- driven expense, was the of SG&A a continued over income quarter as costs reduced Gross margin million net the share by inflation mainly Operating effectively by excludes net and $X.X improvement decline, was onetime in other spending. quarter quarter, EPA prior

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

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

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

growth challenges of drive initiatives on the half our to product offerings. the revenue meaningful year, second continued to continue core in While strategic macroeconomic our begin pressure the will put will

optimistic growth the that result the will soft initiatives of and our fiscal in demand year. to the quarter-over-quarter half we However, second consumer are offset help growth in

to of profitability, initiatives will margins the impact Regarding allow our growth year. the for improve second profit each sequentially quarter of in half the

temper along pressures, competitive profitability demand However, slumping our with continued pricing expansion. will

but long-term lower our on in profitability. to continue to will line sales levels in invest strategies We growth drive focus practical spending with levels,

we range such, are projecting the of the of income for X.X% sales As quarter. percentage in a third to operating X.X% as

of pricing headwinds. competitive consumer and demand, variability in the being drivers range with the conditions largest macroeconomic

our will growth third as savings and to expect margins of margin initiatives cost in the initiatives We gross drive expansion. the in XX.X% range quarter XX%

initiatives However, partially improve in previously compressed continue remainder to sequentially of to continued to we quarter-over-quarter between growth $XX year, which the quarter, market we is by teens. third by mid- control higher costs expected the during intend to actively and this as between the demand investing in SG&A sales are If million improve in gross offset pricing our quarter pressures SG&A and fiscal the We expect should the due than the million being discussed as prudently margins to costs upper second Derek. discussed. see the $XX

year, cash, flow cash partially be higher for to capital working account revenue. of source due offset second by in driven the our balance largely a the outlook fiscal modest we inventory, receivable growing the Regarding reduction by a expect to of half

the the our as we accounts X line SKUs. will working best-selling grow receivables be use in However, sales, positions a weighted be working in to modest timing of capital expect we quarter inventory of with X heavily of deepened as our cash capital and fast-moving in reduction quarter

expenditures For as million expansion ERP invest we our of $X capabilities. between $X.X we capital the and the third expect in quarter, million

discount price opportunistically intrinsic continue remains stock a to our may repurchase at view to modest shares of also significant the value. the level spending at a We if

end the forecast XX% to any fiscal rate million tax to XX%, expected debt fiscal range tax of continue to of million. XXXX of in XXXX the the $X allowances. excluding impact in levels for deferred the is range effective of The of to be asset at valuation We our revaluation $XX

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

Jerald Dittmer

our about slowing consumer challenges optimistic weighing I'm neuter. growth industry economic demand for and are future, Thanks. obvious the

to term delivering investments pay we opportunities. our down on sensibly on call that, while controlling growth continue we in term. debt strategic we to cash to growth generating remain liquidity and and make ensure costs the investing preserve our However, and In profitable , prudent near to flow will your questions. initiatives, open With focused the success long Operator?

Operator

Instructions]. [Operator

Anthony from Company. and will Lebiedzinski Sidoti first Our of come question

Anthony Lebiedzinski

your good Good and I and you've the you improved that believe level overall inventories. for very the Yes, inventories mentioned own of taking a thank Derek, morning, And reducing question. have slightly. retail you done job guys

as sense in back normal retail your So the what will is inventories overall get levels. so-called to to when channel,

Jerald Dittmer

Yes, this Good Anthony, Jerry. is question.

going hundred chance just to several is on. and dealers we see And completed it's Vegas So our market we pretty kind out of West Coast the in still what's got since to talk a choppy. answer

people a There's their Their inventory. We seeing of down. They're traffic bit, still a foot and that inventories down have have little lot is people so inventories come several are X the as as quite year? that's months? down the really the hoped. they -- had going retailer, quickly to of it aren't the answer. depending on rest Is X Is calendar it the ordering.

some to it seeing going we're get X well come they others X said again, that So that down it's another down. to take to and months have

Anthony Lebiedzinski

Got it.

Okay.

sounds a it like bag we the But like So it okay. mixed peak levels past there, also well. are as sounds

So good that's to hear.

Jerald Dittmer

Correct..

Anthony Lebiedzinski

much to have initiatives ballpark How in the quarter you that of performance? about? any of you much growth how the guys Do various as contribute estimate to operating terms did talked

Jerald Dittmer

initiatives for current but between have of revenue fiscal growth of the to Yes, in I million in million incremental $XX won't the year. $XX and forecast we our past guidance provided is our quarter, the in and all full comment

Anthony Lebiedzinski

And as as Charisma those Flex, those that? or margins Got whether you far how comparable would average? margins big for the products the box then characterize Yes. company Or are it. for rollout the or initiatives, to

Alejandro Huerta

in initiatives it's driving to overall. drive accretion Anthony, the good Really our question. Alejandro. margin We're growth

Anthony Lebiedzinski

improvement the you the operating stabilized. margin, hear. fiscal Okay. margin ocean And operating going see i environment as in you it's looks X.X% to But broadly then I yet, certainly good overall, about for the forward? realize at speaking, out guidance like gave in know have Back you fiscal have now. rates were operating great certainly QX QX. then costs to terms beyond labor nice the we down, but going look roughly operating margins it just different obviously, last we a of given haven't should 'XX, year. 'XX, just come -- That's overall, But guidance much freight pretty to progression think of from how

Derek Schmidt

Anthony, it's Derek.

inventories. half, out balance look higher of of for we the the are some as our to So cost through second starting we work

sequentially so And we'll stabilize quarter. see and throughout the improved margins

a in expect trend similar We year fiscal 'XX.

more initiatives. We sequential improvement behind our on year-over-year. of kind investing So do plan growth

I So development. we're to growth the roles around expanding stated initiatives. adding earlier new our dedicated We're capacity in call, product strategic

So have the higher incremental long-term margin will be investments, we improvement will by tempered ROI will growth. phenomenal of drive profitable year-over-year which a some and believe

Anthony Lebiedzinski

you the for facility. guys Got Thanks any Mexicali Derek. update it. Yes. Where that? update the with on And then are

Derek Schmidt

Yes.

not our that, near still still So certainly, in to a we're that potentially pursuing sublease foresee opportunities utilize as the term, the long-term evaluating do we to term, need in and to support a and growth. near but keep it option

Anthony Lebiedzinski

it. Got

you, Okay. All right. of best Well, luck going forward. thank the

Derek Schmidt

Anthony. Thanks,

Operator

[Operator Instructions]. Corporation. Value of And from our Geygan next Investment question Global will JP come

JP Geygan

ship you sounds beginning developments interesting imminent It in are the launch had March of particularly like Flex. put, some very to decline and

business, strategic initiatives? you You with overall or revenue expected impact penetration, can discuss the but addressed or the margins broadly. really both those the Anthony, of of margins on And impact your but more plans then product on growth

Derek Schmidt

Okay.

at legs, look we've consumer Recall them distribution, split that new new categories. out X kind of new of in we product our as -- sales think these all initiatives. segments, I growth

of channel box I proportion think from Flexsteel our earlier. from is initiatives where come that years, by that position these to the a But stylish We're to longer X modern much larger will sales going will dedicated market still term and big geared generations. of come sales on to the our of our retail certainly towards larger is A furniture in proportion the younger mentioned X investments e-commerce. impact more we traditional company channel growth as the obvious grow. will

a decline innovation good we I are a think to And there. going than innovation different competitive is in a furniture lot that I meaningful there's that continue we're examples challenge of pivoting because term. company. as the near advantage how set and bring the And toward find think Flex differentiated ourselves of competitive as to And out we're you'll what that's on

an near transform long is trying term. example company So term the going I on got for that think really how we're of we the everything to

JP Geygan

nuances And challenges the far? other discuss longer storage like impact then particularly your fulfillment any you requirements into big and and inventory you box short both Can the term? term perhaps faced thus entry requirements margins, segment, or on or

Derek Schmidt

Yes.

the I think the than better profile margin in current terms of portfolio big is box, average.

expect as we Alejandro to, alluded this. So

all drive The in of term, retail included. selling expect are line box big stores. online. initiatives expansion, margin necessarily vast kind is growth our right of We inventory long to not we're what channel that building in we of majority through now And

evolve in future, but it is business. will predominantly think I that an the online

I think challenges.

There's actually learnings expectations think stronger I has good I will that long channel it think really phrase the us company. some I'll there's that around JP. a differently, that, -- been make term

thinking of fulfillment accelerated quality which in to force around to think only us service, again, the will that growth. to differently areas programs, it's well other our business, We're factory lend going serve capabilities I audits, build that us will itself

Jerald Dittmer

Yes, JP, this is Jerry.

we things is are online. of now, trials we're to country learnings all our a lot have this have we quite right different -- learnings, big not product there they're used like there's different to go well. same. does is box with to we of So sending of Derek's a players, lot and this lot a that. because the them point the lot the normal of that in of a because of are dealers, -- over there the X places Most distribution of And distribution broad distribution product networks, X this working obviously, through deep product

really us core is it's balance to at because that to also are part do really big that have product having exciting we have. coming help this our helped us is the here it. chain Some learnings of trials is that up. it lot business stores A here The going we we're going of some in are that be

process in these developing also products new are the We channels for of also.

JP Geygan

helpful. in strategic your modulate and That's to how debt dividends should how if And your much we are all, in structure? change, on How repurchases? at allocation particular, as intend capital to share focus you capital Understood. expect do carrying priorities the growth? you comfortable you And

Alejandro Huerta

JP. Good question. We've this. Alejandro. is about This talked

First the an opportunities million we're those and fiscal mean focused growth for against $X XXXX. we're and debt profile. by doesn't we're not That with between end the foremost, our somewhere million down year but on in, outlook looking of invest $XX ROI of opportunistically to and measuring paying

whether -- foremost, be basis, for best and time, So regular even outlook. with the to discussions. our about capabilities from But have this for on changing And to then first thinking invest, then pay back But machinery our production or at equipment, board expansion that's dividend debt opportunities value that investors. and strategic something to down and look a shareholders. our we're perspective. want obviously, our discuss we'll to continue possible very a add we those we not

Jerald Dittmer

Alejandro's comments. to JP, just to add

X.Xx As pursue to strategic I levels can the our as one do longer those we to right want well both the we'd think term, capacity balance that to to as up is we we sheet debt to be if pursue But acquisitions. acquisition. along. X, up again, guess, midterm, comfortable cash strengthen long of so intent -- to in comes opportunities EBIT terms term right or, debt going start build the continue to pursue

Alejandro Huerta

question to other our you had, in repurchase. JP, share The was regards

for at that stays feel level our at look good very We stock if our and to a a be we shareholders. investment that opportunistic will continue it's

to continue that. do will We

JP Geygan

on one ROI that? around And Okay. alluded any sort before. expectation initiatives clarification. of Derek, color put of you final Can to point you strategic then growth your an

Derek Schmidt

And we is relative I Yes. at going shareholder investments is that of we capital creation. our give how cost color deploying all only to I'll we're our have to confidence JP, of the mean generate -- capital. value look

give rest these I that again, specific we've value So things ROI you are assured but added. numbers, that won't confidence got

JP Geygan

questions appreciate a your Okay time and taking nice thanks on and my for quarter. congratulations

Derek Schmidt

JP. Thanks,

Operator

from next The of comes Deysher Pinnacle. question John

John Deysher

going labeling... correct? private brand, that's that's the of big into product any retailers, your type the confirm, box You're to doing not Just

Derek Schmidt

We're actually some doing of both.

sometimes of we using brands. are new labels just own may -- sometimes coming They out are going we use have some forward. our actually, using brands and we are with that off do they also So sometimes their

Jerald Dittmer

call, John, Flexsteel exploring though, big through is majority today Currently what lower some options but is the are branded, vast box flowing I'll for, label other white cost we of product. what

John Deysher

private Okay. White label? Label is

Derek Schmidt

Correct

John Deysher

All Okay. right.

as So of correct? get all you discuss testing be and through of you'll able process the to that that, more

Derek Schmidt

Yes. Correct.

John Deysher

enough. Okay. Fair

The other end at the the is, backlog question quarter? what of was the

Derek Schmidt

kind million. of Roughly $XX the $XX I million beginning floating It's year, million. between $XX think, since been, of and the

So levels. it's to back stabilized and normal

John Deysher

Thanks, Very and Okay. good good. luck.

Derek Schmidt

Thank you.

Jerald Dittmer

you Thank

Operator

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

Jerald Dittmer

you. and closing, all thank Thank their I second quarter. service In employees for like would performance the outstanding Flexsteel again to during our

also Thank any everybody. ones. to next and with day. excited call. really updating And are like We Thanks, those call. about in We for today's reach our you our bringing ask I additional everyone what that for future participating Have questions. you to out a great on please thank is us. forward you would look

Operator

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

Flexsteel Industries (FLXS) 7 Feb 232023 Q2 Earnings call transcript