Flexsteel 4Q sales off 2.3%, profits drop 43.2%
Residential furniture sales dip 7.2% in qtr.
By Janice Chamberlain -- Furniture Today, September 5, 2005
Dubuque, Iowa — Pummeled by sales drops in two of its business segments, including residential furniture, manufacturer Flexsteel reported overall sales slipped 2.3% in its fourth quarter ended June 30. Net income plummeted 43.2%.
For the year, sales for the upholstery and case goods producer were up 2.2% to $410 million, measured against $401.2 million in the previous year. Net income fell 40.3% to $6 million from $10.1 million last year.
Sales in the fourth quarter came to $105.8 million, compared with $108.3 million in the same period in 2004. Net profits in the latest quarter were $1.5 million, off from $2.7 million in the year-earlier period.
Flexsteel results include DMI Furniture from its September 2003 acquisition.
In the quarter, Flexsteel reported residential segment sales of $67.7 million, off 7.2% from year-earlier sales of $72.9 million. Commercial sales increased 59.2% to $19.7 million, and recreational vehicle sales fell 20.3% to $18.4 million.
For the year, the company said sales in its residential segment dipped 1.6% to $261.9 million, commercial sales were up 39.8% to $69.3 million, and recreational vehicle sales dropped 7.7% to $78.8 million.
Flexsteel said the furniture industry is in an unprecedented period of change, and that the company is positioned to take advantage of that change. It cited the "tremendous success" of its recently launched Wrangler Home Collection.
Gross margins for the quarter and year were 19.3% and 18.7%, respectively, compared with 20.2% and 20.7% for the year-earlier periods.
Flexsteel said gross margins were hurt by cost increases for steel, petroleum-based products and poly foam.
The company said that it expects margin pressures to continue throughout the next six months, with rising fuel costs a key element.
In a conference call with analysts, Chairman and CEO Bruce Lauritsen said the fourth quarter was a continuation of what the company had experienced in the past year.
He added that pricing pressures from offshore goods continue to be "pretty severe."
Flexsteel said distribution channels increasingly include such non-traditional avenues as mass merchants, wholesale clubs and specialty retail stores, in addition to e-commerce. The company said it is exploring these channels.
Lauritsen said the company had weathered a number of cost hikes during the year, with poly foam prices going up "six or seven" times. Steel prices now have leveled off, he said, but at nearly record highs.
And with fuel prices soaring, "the cost to deliver product is up substantially" over last year, he said.
Flexsteel uses a blended sourcing strategy, and Lauritsen said between 25% and 30% of last year's sales were from non-domestic locations. He expects to see continued growth of imports.
The company believes the weaker-than-expected residential sales trend will continue for the next six months. At the same time, recreational vehicle sales are likely to be stable, and commercial office furniture sales should benefit from increased demand, Flexsteel said.
| Flexsteel Inds. (a) | |||
|---|---|---|---|
| Earnings per share are fully diluted, and all figures in parentheses are losses or declines. | |||
| Quarter ended 6/30 | 2005 | 2004 | Change |
| (a) Includes the results of DMI Furniture from its Sept. 18, 2003 acquisition. (b) Includes an $809,022 pretax gain on the sale of facilities. | |||
| Sales | $105,768,368 | $108,298,046 | (2.3%) |
| Operating income | 2,466,278 | 4,670,404 | (47.2%) |
| Net income | 1,539,588 | 2,709,979 | (43.2%) |
| Earnings per share | 0.23 | 0.41 | (43.9%) |
| Year ended 6/30 | 2005 | 2004 | Change |
| Sales | $410,022,809 | $401,221,510 | 2.2% |
| Operating income | 8,256,692 | 16,602,209 | (50.3%) |
| Net income | (b)6,043,956 | 10,130,257 | (40.3%) |
| Earnings per share | 0.92 | 1.55 | (40.6%) |
