Flexsteel 3Q sales down 5.3%
Income down to $1.7M
By Furniture Today Staff -- Furniture Today, April 25, 2005
DUBUQUE, Iowa (BUSINESS WIRE) -- Flexsteel Industries Inc. said net sales for the third quarter ended March 31, 2005 were $101.3 million compared to the prior year quarter of $107.0 million, a decrease of 5.3%.
Net income for the current quarter was $1.7 million or $0.26 per share compared to $2.5 million or $0.39 per share in the prior year quarter, a decrease of 33.1%. In addition, current quarter net income of $1.7 million includes a $0.2 million pre-tax gain from the sale of a former manufacturing facility and $0.7 million of tax benefit related to reduced estimated tax liabilities.
Net sales for the nine months ended March 31, 2005 were $304.3 million compared to $292.9 million in the prior year nine months, an increase of 3.9%. The net sales and operating results being reported for the prior year include net sales and operating results for DMI Furniture, Inc. (DMI) for the period September 18, 2003 (date of acquisition) through March 31, 2004. DMI net sales included above were $87.4 million and $63.0 million for the nine months ended March 31, 2005 and 2004, respectively. Net income for the nine months ended March 31, 2005 was $4.5 million or $0.68 per share compared to $7.4 million or $1.14 per share for the nine months ended March 31, 2004, a decrease of 39.3%.
For the quarter ended March 31, 2005, residential net sales were $64.6 million, compared to $68.2 million, a decrease of 5.2% from the prior year quarter. Recreational vehicle net sales were $19.8 million, compared to $22.0 million, a decrease of 10.2% from the prior year quarter. Commercial net sales were $17.0 million, compared to $16.8 million in the prior year quarter, an increase of 0.9%.
For the nine months ended March 31, 2005, residential net sales were $194.2 million, an increase of 0.4% from the nine months ended March 31, 2004. Recreational vehicle net sales were $60.5 million, a decrease of 3.1% from the nine months ended March 31, 2004. Commercial net sales were $49.6 million, an increase of 33.4% from the nine months ended March 31, 2004. The increase in net sales reflects improved industry performance for commercial products in addition to the inclusion of DMI net sales for the entire nine months in fiscal 2005.
Gross margin for the quarter ended March 31, 2005 was 17.9% compared to 19.8% in the prior year quarter. For the nine months ended March 31, 2005, the gross margin was 18.5% compared to 20.9% for the prior year nine-month period. Gross margin was adversely affected by cost increases for steel and petroleum based products on a quarterly and year-to-date basis in comparison to the prior fiscal year quarter and year-to-date.
Selling, general and administrative expenses were 16.4% and 15.9% of net sales for the quarters ended March 31, 2005 and 2004, respectively. For the nine months ended March 31, 2005 and 2004, selling, general and administrative expenses were 16.6% and 16.8%, respectively.
During the quarter ended March 31, 2005, the Company recorded a pre-tax gain on the sale of a former manufacturing facility of $0.2 million. For the fiscal year-to-date the Company has recorded pre-tax gains of $0.8 million on the sale of facilities.
During the quarter ended March 31, 2005, an examination by the Internal Revenue Service of the Company's federal income tax returns for the fiscal years ended June 30, 2003 and 2004 was completed. Due to the favorable results, the Company has reviewed and reduced its estimate of accrued tax liabilities by $0.7 million. The decrease resulted in income tax rates of (3.7%) and 27.9% for the quarter and fiscal year-to-date periods ending March 31, 2005, respectively. The Company expects that the income tax rate for its fourth fiscal quarter will be approximately 37%.
Working capital (current assets less current liabilities) at March 31, 2005 was $88.2 million, which includes cash, cash equivalents and investments of $4.6 million. Working capital increased by $4.8 million from June 30, 2004. Current assets declined $7.6 million. Accounts receivable declined $6.2 million with the decrease in net sales. Inventories declined $1.8 million as a result of lower manufacturing levels. Current liabilities decreased $12.4 million. Accounts payable declined $1.4 million while lower inventory purchases and the decrease in accounts receivable and inventory allowed for a reduction in current notes payable of $9.0 million.
Capital expenditures were $2.7 million for the fiscal year-to-date, primarily for delivery and manufacturing equipment. Depreciation and amortization expense was approximately $4.4 million and $4.2 million for the nine-month periods ended March 31, 2005 and 2004, respectively. The Company expects that capital expenditures will be less than $1.0 million for the remainder of the fiscal year.
All earnings per share amounts are on a diluted basis.
Outlook
On a fiscal year-to-date basis, residential net sales have been weaker than anticipated and we expect that this softness will continue for the remainder of the fiscal year. Net sales of vehicle seating have fallen off as several manufacturers of recreational vehicles adjust inventory levels of finished units. We expect only a modest improvement in vehicle seating sales beginning in late May or early June as manufacturers begin the new model year production. The current volatility and high cost of fuel may dampen the favorable demographics that currently exist within the vehicle seating industry. Commercial seating provides an opportunity to expand distribution and increase net sales; however, in this highly competitive market, the cost of product development and the product margins will be monitored closely.
Margin pressures that started near the end of calendar year 2003 have continued through our third fiscal quarter and we expect these pressures to continue through the remainder of calendar year 2005. The cost of steel and component parts that have steel content leveled somewhat during the fiscal quarter ended March 31, 2005. However, the leveling of steel prices is at relatively high historical cost per pound as it relates to product cost. The cost of fuel and poly foam continued to increase during the quarter ended March 31, 2005. We anticipate that petroleum prices will remain volatile and at record or near record levels for the remainder of calendar year 2005 resulting in increasing costs in our fourth fiscal quarter and the first half of fiscal year 2006.
The company continues to take actions to address the above concerns including: new product introductions, refining existing product offerings, adjusting selling and delivery prices, adjusting production levels and implementing cost control measures for inventory and capital expenditures. These actions occur regularly regardless of operating performance, but will continue to receive additional attention under current business conditions. We continue to believe that our strategy of providing furniture from a wide selection of domestically manufactured and imported products is sound business practice and will continue.
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Flexsteel 4Q net sales up 6.2%
Aug 18, 2006 -
Flexsteel 2Q sales, income down
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