DUBUQUE, Iowa — Flexsteel says it faced and continues to face "many consumer and macroeconomic headwinds" that led to a decrease in third quarter fiscal year 2023 financial results ended March 31, 2023.

Flexsteel ranked #28 in the FDMC 300 list of top woodworking companies in North American with $544.3 million in sales. Net sales for the quarter decreased 29.5% to $99.1 million compared to $140.4 million in the prior-year quarter.

Despite these negative numbers, Jerry Dittmer, president and CEO of Flexsteel Industries, said that he was pleased by the company's performance, "especially as we consider the many consumer and macroeconomic headwinds we continue to face.

“Despite the market challenges, we delivered net sales for the third quarter of $99.1 million, representing sequential quarter-over-quarter growth of 6.4% compared to the second quarter. Our growth initiatives are working and gaining momentum, and we anticipate continuing that drive to deliver even higher sales in the fourth quarter compared to the third quarter results. At the same time, we are improving profitability and generating solid free cash flow. Our operating income of $2.1 million, or 2.1% of revenue, was in the upper range of our guidance of 1.0% to 2.5%. As planned, we are working through higher-cost inventories and realizing the benefits of cost-saving initiatives to drive margin accretion. Similar to our sales outlook, we expect profitability to sequentially improve in the fourth quarter compared to the third quarter, bolstered by the traction of our growth initiatives which have an attractive margin profile. I’m very excited about the trajectory of our business. We’ve been transforming the Company for several years. As a result, we are well-positioned to grow profitably for the remainder of fiscal year 2023 and into fiscal year 2024 despite the macroeconomic hurdles that are likely to dampen overall demand for furniture.”

Dittmer concluded, “We are competing well, and our customers validated this view during last week’s April High Point market. The energy in our showroom and positive customer feedback was outstanding. We continue to modernize the Flexsteel brand by introducing new, on-trend products and covers at more competitive price points while maintaining the differentiated comfort and quality that defines the brand. We also expanded the product offering of our new Charisma brand, targeting the style and price preferences of younger consumers. In addition, we successfully launched our new Zecliner™, sleep solutions recliner, in March. We expanded the line recently and have more innovation planned for release at next October’s market. Lastly, flex™, our small parcel, contemporary modular furniture solution, was launched in the Big Box channel this month and will be extended to multiple, e-commerce partners in the fourth quarter. The future is exciting for Flexsteel. We’re investing, innovating, and transforming to strengthen our market leadership and drive long-term profitable growth. Our associates have conviction in our strategy and are deeply committed to executing our growth plans.”

Operating results

Net sales were $99.1 million for the third quarter compared to net sales of $140.4 million in the prior-year quarter, a decrease of approximately $41.4 million, or (29.5%), as home furnishings sales have reverted to be in line with pre-pandemic volumes. The decrease was driven by lower sales volume in home furnishings products sold through retail stores of $36.7 million, or (29.1%), versus the prior-year quarter. Sales of products sold through e-commerce channels decreased by $4.7 million, or (32.9%) compared to the prior year’s second quarter. Sales in the prior-year quarter were especially strong due to a surge in COVID-induced spending on home furniture.

The Company reported net income of $1.5 million, or $0.28 per diluted share, for the quarter ended March 31, 2023, compared to net income of $5.3 million, or $0.82 per diluted share, in the prior-year quarter.

Gross margin as a percent of net sales for the quarter ended March 31, 2023, was 18.8%, compared to 15.7% for the prior-year quarter, an improvement of 310 basis points (“bps”). The 310-bps increase was primarily driven by control of expenses mainly related to ancillary charges, and the impact of strategic cost savings initiatives, partially offset by the impact of volume deleverage of fixed manufacturing costs and increased cost of delivery due to higher diesel fuel costs.

Selling, general, and administrative (SG&A) expenses slightly increased to $16.5 million in the third quarter of fiscal 2023 compared to $16.3 million in the prior-year quarter, an increase of 1.2%. The increase is mainly due to investment in growth initiatives partially offset by controlled spending across all other categories.

The Company reported a tax expense of $0.4 million, or an effective rate of 21.0%, during the third quarter compared to a tax expense of $0.3 million, or an effective rate of 5.9%, in the prior-year quarter. The effective tax rate is primarily impacted by non-deductible stock compensation, state taxes, and the impacts associated with uncertain tax positions.

Liquidity
The Company ended the quarter with a cash balance of $2.4 million, working capital (current assets less current liabilities) of $106.6 million, and availability of approximately $43.2 million under its secured line of credit.

For the nine months ended March 31, 2023, the Company generated $26.9M of free cash flow (cash provided by operating activities, less capital expenditures) and reduced bank debt by more than half, or $20.0 million.

Capital expenditures for the quarter ended March 31, 2023, were $1.4 million.