Q3 2024 Flexsteel Industries Inc Earnings Call

Operator: Good morning, and welcome to the Flexsteel Industries third quarter fiscal year 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. And to withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mike Ressler, Chief Financial Officer of Flexsteel Industries. Please go ahead. Thank you.

Good morning, and welcome to the Fox deal Industries third quarter fiscal year 'twenty 'twenty four earnings conference call all participants will be in a listen only mode.

If you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

I'll ask a question you May press Star then one on your telephone keypad until withdraw your question. Please press Star then two please.

Please note this event is being recorded.

I would now like to turn the conference over to Mike Ressler, Chief Financial Officer for Flex Steel industries. Please go ahead.

Michael Ressler: Thank you and welcome to today's call to discuss Blackstone industries third quarter fiscal year 2024 financial results.

Michael Ressler: Thank you and welcome to today's call to discuss Flexsteel Industries' third quarter fiscal year 2024 financial results. Our earnings release, which we issued after the market closed yesterday, April 29th, is available on the Investor Relations section of our website at www.flexsteelindustries.com under News & Events. I'm here today with Jerry Dittmer, Chief Executive Officer, and Derek Schmidt, President.

Michael Ressler: Our earnings release, which we issued after market closed yesterday April 29.

Michael Ressler: Available on the Investor Relations section of our website at Www Dot flex fuel industries Dot com.

Michael Ressler: The news and events.

Michael Ressler: I'm here today, with Jerry Dittmer, Chief Executive Officer, and Eric Smith President.

Michael Ressler: On today's call, we will provide prepared remarks, and we will then open the call to your questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified using words such as estimate, anticipate, expect, and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in a forward-looking statement.

Speaker Change: On today's call, we will provide prepared remarks, and we will then open the call to your questions.

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

Speaker Change: Forward looking statements by their nature involve estimates projections goals forecasts and assumptions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward looking statements.

Michael Ressler: Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K that's updated by our subsequent quarterly reports on Form 10-Q and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additionally, we may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.

Speaker Change: Such risks and uncertainties include but are not limited to those that are described in our most recent annual report on Form 10-K.

Speaker Change: The updated by our subsequent quarterly reports on Form 10-Q.

Speaker Change: Our SEC filings as applicable.

Speaker Change: These forward looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additionally, we may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.

Michael Ressler: The press release, available on the website, contains the financial and other quantitative information to be discussed today, as well as the reconciliation of GAAP to non-GAAP measures. And with that, I'll turn the call over to Jerry Dittmer. Jerry?

Speaker Change: The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures.

Speaker Change: And with that I'll turn the call over to Jerry Dittmer Jerry.

Jerald K. Dittmer: Good morning, and thank you for joining us today. I would like to start by acknowledging what was in our press release yesterday, that I will be retiring from my role as CEO at the end of fiscal year 2024. I am honored to have served in this role and worked alongside an incredible group of hardworking and dedicated individuals here at Flexsteel. I am proud of the foundation we have built and confident in the organization's ability to continue achieving long-term profitable growth.

Jerald K. Dittmer: Good morning, and thank you for joining us today I would like to start by acknowledging what was in our press release yesterday, but I will be retiring from my role as CEO at the end of fiscal year 2024.

Jerald K. Dittmer: I am honored to have served in this role and work alongside an incredible group of hardworking and dedicated individuals here at flex deal.

Jerald K. Dittmer: I am proud of the foundation, we have built and confidence in the organization's ability to continue achieving long term profitable growth.

Jerald K. Dittmer: I would also like to congratulate Derek Schmidt, who will assume the role of Chief Executive Officer upon my retirement. Derek is a well-accomplished leader, and I am confident in his ability to continue driving results and executing on both our near-term and long-term strategies. With that, I am very pleased to share with you our third quarter fiscal year 2024 results. While headwinds from macroeconomic challenges persist in our industry, we continue to execute our strategic initiatives and delivered sales growth of 8.2 percent when compared to the prior year quarter.

Jerald K. Dittmer: I would also like to congratulate Derek Schmidt, who will assume the role of Chief Executive Officer Upon my retirement, Jeff.

Derek Paul Schmidt: Eric is a well accomplished leader and I'm confident in his ability to continue driving results and executing on both our near term and long term strategies.

Speaker Change: With that I am very pleased to share with you our third quarter fiscal year 2024 results.

Jerald K. Dittmer: Headwinds from macroeconomic challenges persist in our industry, we continue to execute our strategic initiatives and delivered sales growth of eight 2% when compared to the prior year quarter.

Jerald K. Dittmer: The increased sales, along with our commitment to operational efficiency and prudent cost savings, drove increased operating income when compared to the same quarter of the prior year, even with the addition of $2.6 million in restructuring costs related to the closure of our Dublin facility. While we expect the business environment in the near term to remain challenged, our team isn't deterred and remains intensely focused on continuing to properly grow our business throughout the remainder of fiscal year 2024 and the long term.

Jerald K. Dittmer: Increased sales along with our commitment to operational efficiency and prudent cost savings drove increased operating income when compared to same quarter of the prior year, even with the addition of $2.6 million in restructuring costs related to the closure of our Dublin facility.

Jerald K. Dittmer: While we expect the business environment in the near term to remain challenged our team isn't detour and remain intensely focused on continuing to profitably grow our business throughout the remainder of fiscal year 2024, and the long term.

Jerald K. Dittmer: I'll now turn the call over to Derek to discuss his results and an update on our growth initiative. I'll be back at the end of the call with some closing comments on what we see ahead. Thank you.

Jerald K. Dittmer: I'll now turn the call over to Derek to discuss our results and an update on our growth initiatives I'll be back at the end of the call with some closing comments on what we see ahead.

Derek Paul Schmidt: Thank you Jerry and good morning, everyone.

Derek Paul Schmidt: Thank you, Jerry, and good morning, everyone. First, I'd like to thank Jerry for his invaluable contributions to the company. Since joining Flexsteel almost five and a half years ago as president and CEO, his leadership has been instrumental in transforming our 130-year-old company. Under his direction, the company has crafted an exciting vision focused solely on the residential furniture market, strengthened talent and improved culture, and has accelerated investments in innovation and customer experience to drive long-term growth.

Derek Paul Schmidt: First I'd like to thank Gerry for his invaluable contributions to the company.

Derek Paul Schmidt: Since joining flex steel almost five and a half years ago as president and CEO. His leadership has been instrumental in transforming our 130 year old company.

Derek Paul Schmidt: Under his direction. The company is crafted an exciting vision focused solely on the residential furniture market has strengthened talent and improved culture and has accelerated investments in innovation and customer experience to drive long term growth.

Derek Paul Schmidt: Recently, Flexsteel was named by Newsweek as one of the most trustworthy companies in America, which is a true testament to Jerry's leadership. On a personal level, I'm also deeply grateful for Jerry's coaching, mentorship, and support over the many years we've worked together. He has established a foundation and trajectory for the company to continue to thrive for many years to come. Thank you, Jerry.

Derek Paul Schmidt: Recently flex deal was named by Newsweek as one of the most trustworthy companies in America, which is a true Testament to Jerry's leadership.

Derek Paul Schmidt: On a personal level I'm also deeply grateful for Jerry's coaching mentorship and support over the many years, we've worked together here.

Derek Paul Schmidt: He has established a foundation and trajectory for the company to continue to thrive for many years to come.

Speaker Change: Thank you Jerry.

Derek Paul Schmidt: Turning back to the business, like Jerry, I am very pleased with our third-quarter results. We are competing well, gaining share, and growing the business in a challenging industry environment where many industry participants continue to report double-digit year-over-year declines because of the investments we've made in innovation. New product development and customer experience enhancements are all paying off, and our strategies to pursue growth in new markets are working, and we see it in our results.

Speaker Change: Turning back to the business like Jerry I am very pleased with our third quarter results, we're competing well gaining share and growing the business in a challenging industry environment, where many industry participants continue to report double digit year over year declines.

Speaker Change: The investments we've made in innovation.

Speaker Change: New product development and customer experience enhancements are all paying off and our strategy is to pursue growth in new markets are working.

Speaker Change: And we see it in our results.

Derek Paul Schmidt: We grew our top line by 8.2% in the fiscal third quarter, continuing the strong momentum from the second quarter when we grew sales by 7.5%. As noted in the earnings press release, when excluding the $1.5 million impact from the prior year's ocean freight surcharge elimination, sales growth related to unit volume and product mix was a robust 9.9% in the quarter, further reinforcing our strong sales execution.

Speaker Change: We grew our topline by eight 2% in the fiscal third quarter, continuing the strong momentum from the second quarter. When we grew sales by seven 5%.

Speaker Change: As was noted in the earnings press release, when excluding the $1.5 million impact from the prior year's Ocean freight surcharge elimination sale.

Speaker Change: Sales growth related to unit volume and product mix was a robust nine 9% in the quarter.

Speaker Change: Further reinforcing our strong sales execution.

Derek Paul Schmidt: And while we expect sluggish industry conditions to persist for the next 6 to 12 months, we remain confident in our ability to continue our growth into the fourth quarter of fiscal 2024 and into fiscal year 2025 from both continued share gains in our core business and increasing momentum in our market expansion initiatives. Part of our confidence in maintaining our growth momentum stems from our success at the recent High Point Market a few weeks ago, while overall market attendance was solid and up 1% versus the prior year's market.

Speaker Change: And while we expect sluggish industry conditions to persist for the next six to 12 months, we remain confident in our ability to continue our growth into the fourth quarter of fiscal 2024.

Speaker Change: And into fiscal year 2025 from both continued share gains in our core business and increasing momentum in our market expansion initiatives.

Speaker Change: Part of our confidence in maintaining our growth momentum stems from our success at the recent high point market a few weeks ago.

Speaker Change: While overall market attendance was solid and up 1% versus prior year's market.

Derek Paul Schmidt: The number of customer appointments in the Flexsteel showroom was impressive, an increase by 29% versus the prior year's market, a clear indication that our customers are leaning into Flexsteel as a preferred partner. In addition, we showed the biggest lineup of new products in my four years with Flexsteel, 36 new groups and 16 line extensions.

Speaker Change: The number of customer appointments in the flex still showroom was impressive and increased by 29% versus prior year's market.

Speaker Change: A clear indication that our customers are leaning into flex steel as a preferred partner.

Speaker Change: In addition, we showed the biggest lineup of new products in my four years with flex deal.

Speaker Change: 36, new groups and 16 line extensions.

Derek Paul Schmidt: When compared with recent markets, that lineup represented almost a 40% increase in new product introductions. Most importantly, based on positive customer feedback and commitments, we are activating almost 90% of all the new products shown in the market, which is an exceptional success rate. A good portion of the new product was squarely focused on our core business, which gives us optimism that we can continue to gain, share, and modestly grow our core business even with persistently sluggish industry conditions.

Speaker Change: When compared with recent markets that lineup represented almost a 40% increase in new product introductions.

Speaker Change: Most importantly, based on positive customer feedback and commitments, we are activating almost 90% of all the new products shown at market.

Speaker Change: This is an exceptional success rate.

Speaker Change: A good portion of the new product was squarely focused on our core business, which gives us optimism that we can continue to gain share and modestly grow the core even with persistently sluggish industry conditions.

Derek Paul Schmidt: At the same time, we advanced all our market expansion initiatives at April High Point Markets. First, we launched multiple new collections under our new brand, Charisma, which is intended to reach younger consumers with lower-priced, on-trend products.

Speaker Change: At the same time, we advanced all of our market expansion initiatives at April high point market.

Speaker Change: First we launched multiple new collections under a new brand charisma.

Speaker Change: Which is intended to reach younger consumers with lower priced on trend product the.

Derek Paul Schmidt: The product was very well-received, and we've added both design and engineering talent this year to quickly expand the Charisma offering over the next 18 months. Second, we expanded our Flex collection with new hubs and other accessories to further improve its modularity and appeal to younger consumers. And for our independent retail partners, Flex is now available in custom fabrics produced in four weeks or less. Third, Z-Kleiner, our proprietary sleep chair offering, was expanded with new fabrics and a new Zofa solution, which is effectively two Z-Kleiners connected by a center console.

Speaker Change: The product was very well received and we've added both design and engineering talent. This year to quickly expand the charisma offering over the next 18 months.

Speaker Change: Second we expanded our flex collection with new hubs and other accessories to further improve its modularity and appeal to younger consumers.

Speaker Change: And for our independent retail partners Flex is now available in custom fabrics produced in four weeks or less.

Speaker Change: Third the decliner are proprietary sleep care offering was expanded with new fabrics and a new sofa solution, which is effectively choose decliners connected by a center council.

Derek Paul Schmidt: We continue to invest in powerful POS or point of sale materials to help our retailers tell the differentiated Z-Kleiner story in-store, as our customers who leverage our POS materials experience, on average, a sales lift three times larger than those who don't use it. We are also embarking on national digital and print marketing campaigns to broaden consumer awareness of Z-Kleiner and to drive increased demand for our sleep solution into our customer stores.

Speaker Change: We continue to invest in powerful P O S or point of sale materials to help our retailers tell the differentiated Z cleaner store story in store.

Speaker Change: As our customers, who leverage our Pos materials experienced on average a sales lift three times larger than those who don't use it.

Speaker Change: We are also embarking on national digital and print marketing campaigns to broaden consumer awareness of decliner into drive increased demand for our sleep solution to our customer stores.

Derek Paul Schmidt: Fourth, we launched a broad set of compelling on-trend case goods with superior quality under the Flexsteel brand across bedroom, dining, and occasion. These are large product categories where the company is underpenetrated. We now have the design talent and an advantaged supply chain to compete effectively in these categories and gain share. Fifth, and lastly, we had highly productive business development meetings at market with multiple big box retailers and e-tailers, which included both existing and new potential customers.

Speaker Change: Fourth we launched a broad set of compelling on trend case, good products with superior quality under the flex still brand across bedroom dining and occasional.

Speaker Change: These are large product categories, where the company is underpenetrated.

Speaker Change: We now have the design talent and advantaged supply chain to compete effectively in these categories and gained share.

Speaker Change: Fifth and lastly, we had highly productive business development meetings at market with multiple big box retailers and E Tailers, which.

Speaker Change: That included both existing and new potential customers there.

Derek Paul Schmidt: They value the Flexsteel brand and will continue to pursue opportunities to expand our sales distribution where it is profitable and sustainable long-term. While I'm excited about our top-line growth and future growth prospects, I'm equally energized by our improved profitability, which is being propelled by Ford drivers. First, new products with higher margin profiles.

Speaker Change: Value of the flex still brand and we'll continue to pursue opportunities to expand our sales distribution.

Speaker Change: Where it is profitable and sustainable long term.

Speaker Change: While I'm excited about our topline growth and future growth prospects I'm equally energized by our improved profitability, which is being propelled by four drivers.

Speaker Change: First new products with higher margin profiles, we raised the threshold for new product margins and expect product lifecycle management will continue to improve our gross margin over time.

Derek Paul Schmidt: We raised the threshold for new product margins and expect product lifecycle management will continue to improve our growth margin over time. Second, we're executing well operationally and delivering strong cost savings within our supply chain. Third, we've remained disciplined with pricing and pulled back promotions where needed to improve overall profitability. And fourth, we're achieving leverage of fixed costs through higher sales volume, which we believe will continue to be an important driver of operating margin improvement going forward as we grow the business.

Speaker Change: Second we are executing well operationally and delivering a strong cost savings within our supply chain.

Speaker Change: Third we've remained disciplined with pricing and pullback promotions where needed to improve overall profitability.

Speaker Change: Fourth we are achieving leverage of fixed cost through higher sales volume, which we believe will continue to be an important driver of operating margin improvement going forward as we grow the business.

Derek Paul Schmidt: The key takeaway is that our strategies are working, and we are growing and gaining share under challenging industry conditions. We must remain aggressive with our investments in pursuit of new growth to continue our positive sales momentum. And we have robust plans to continue growing through both our core markets and expansion into new markets. We are rapidly improving profitability, with more gains expected in the fourth quarter of fiscal 2024 and into fiscal 2025.

Speaker Change: The key takeaway is that our strategies are working and we are.

Speaker Change: We're growing and gaining share under challenging industry conditions.

Speaker Change: We must remain aggressive with our investments in pursuit of new growth to continue our positive sales momentum and we have robust plans to continue growing through both our core markets and expansion into new markets.

Speaker Change: We are rapidly improving profitability with more games expected in the fourth quarter of fiscal 2024 and into fiscal 2025.

Derek Paul Schmidt: We are generating strong free cash flow and strengthening our balance, and we are investing to continuously improve our customer experience and to drive new innovation that will differentiate us and strengthen our market leadership long term. The future is bright, and I'm excited about what lies ahead for our organization. With that, I'll turn the call over to Mike, who will give you some additional details on the financial performance for the third quarter and the outlook for the fourth quarter of fiscal year 2024.

Speaker Change: We are generating strong free cash flow and strengthening our balance sheet.

Speaker Change: And we are investing to continuously improve our customer experience and to drive new innovation that will differentiate us and strengthen our market leadership long term.

Speaker Change: The future is bright and I'm excited about what lies ahead for our organization.

Speaker Change: With that I'll turn the call over to Mike.

Michael Ressler: Who will give you some additional details on the financial performance for the third quarter and the outlook for the fourth quarter of fiscal year 2024.

Michael Ressler: Thanks, Derek. For the quarter, net sales were $107.2 million, slightly above our guidance of $101 to $106 million provided during our second quarter fiscal 2024 earnings call. We carried our positive growth momentum from Q2 into Q3 and delivered growth in both our core business as well as growth from our market expansion initiatives. Sales orders for the quarter were $111.5 million, reflecting growth of $12.2 million, or 12.3% compared to the prior year quarter.

Michael Ressler: Thanks, Derek for the quarter net sales were $107 $2 million slightly above our guidance of $101 million to $106 million provided during our second quarter fiscal 2024 earnings call.

Speaker Change: We carried our positive growth momentum from Q2 into Q3 and delivered growth in both our core business as well as growth from our market expansion initiatives.

Michael Ressler: Sales orders for the quarter were $111 $5 million, reflecting growth of $12 $2 million or 12, 3% compared to the prior year quarter.

Michael Ressler: Our healthy order backlog of $61.5 million at the end of the third quarter, along with strong order trends, give us confidence that we have sustainable growth momentum throughout the rest of fiscal 2024 and into fiscal 2025. From a profit perspective, the company delivered GAAP operating income of $3.0 million, or 2.8% of sales, in line with our previously disclosed guidance of 2.5 to 3.5. When excluding the $2.6 million in restructuring charges related to the closure of our Dublin, Georgia facility, adjusted operating income was $5.6 million, or 5.2% of net sales.

Michael Ressler: Our healthy order backlog of $61 $5 million at the end of the third quarter, along with strong order trends give us confidence that we have sustainable growth momentum throughout the rest of fiscal 'twenty 'twenty four and into fiscal 2025.

Michael Ressler: From a profit perspective, the company delivered GAAP operating income of three point your $1 million or two 8% of sales in the third quarter.

Michael Ressler: In line with our previously disclosed guidance of two five to three 5%.

Michael Ressler: When excluding the $2 $6 million in restructuring charges related to the closure of our Dublin, Georgia facility.

Michael Ressler: Adjusted operating income was $5 $6 million or five 2% of net sales.

Michael Ressler: The meaningful increase in our operating income was driven by higher sales and gross margin expansion. Gross margin improved to 21.7% in the quarter compared to 18.8% in the prior year quarter. As a result of our team's relentless focus on cost savings, operational execution, pricing discipline, and product portfolio management, selling general and administrative expenses decreased to 16.5% of net sales in the quarter compared to 16.7% of sales in the prior year quarter. The decrease was due to leverage on higher sales, partially offset by investments in our strategic growth initiatives and higher incentive compensation.

Michael Ressler: And meaningful increase in our operating income was driven by higher sales and gross margin expansion.

Michael Ressler: Gross margin improved to 21, 7% in the quarter compared to 18, 8% in the prior year quarter.

Michael Ressler: A result of our team's relentless focus on cost savings operational execution pricing discipline and product portfolio management.

Michael Ressler: Selling general and administrative expenses decreased to 16, 5% of net sales in the quarter compared to 16, 7% of sales in the prior year quarter.

Michael Ressler: The decrease was due to leverage on higher sales, partially offset by investments in our strategic growth initiatives and higher incentive compensation.

Michael Ressler: Moving to the balance sheet and statement of cash flows, we continue to strengthen our balance sheet, ending the quarter with $4.6 million in cash, working capital of $96.2 million, and a balance on our revolving line of credit of $14.2 million. Our inventory optimization initiatives enabled us to reduce inventory by $8.6 million in the quarter while maintaining exceptional service levels for our customers. Our increased profit, combined with improved working capital levels, allowed us to pay down our debt by 21% when compared to the fiscal second quarter.

Michael Ressler: Moving to the balance sheet and statement of cash flows we continue to strengthen our balance sheet ending the quarter with $4 $6 million in cash working capital of $96 $2 million and our balance on our revolving line of credit of $14 $2 million.

Michael Ressler: Our inventory optimization initiatives enabled us to reduce inventory by $8 $6 million in the quarter, while maintaining exceptional service levels for our customers.

Michael Ressler: Our increased profit combined with improved working capital levels allowed us to pay down our debt by 21% when compared to the fiscal second quarter.

Jerald K. Dittmer: Turning to our outlook, the company reiterates its full year fiscal 2025 guidance. For the fiscal fourth quarter, we reiterate our sales guidance of $107 to $112 million. We project GAAP operating margin in the range of 3.5 to 4.3%, which has been updated to reflect non-cash charges related to the revaluation of equity awards associated with our CEO transition and retirement. We expect an adjusted operating margin in the range of 5.2% to 6.0% of net sales, reflecting an increase in the low end of our previously disclosed guidance range of 5.0% to 6.0%, following our strong Q3 performance.

Speaker Change: Turning to our outlook.

Speaker Change: The company reiterates its full year fiscal 2025 guidance.

Michael Ressler: For the fiscal fourth quarter, we reiterate our sales guidance of $107 million to $112 million.

Michael Ressler: We project GAAP operating margin in the range of three five to four 3%, which has been updated to reflect noncash charges related to the revaluation of equity awards associated with our CEO transition and retirement.

Michael Ressler: We expect adjusted operating margin in the range of $5, 2% to 6.0% of net sales, reflecting an increase in the low end of our previously disclosed guidance range of 5.0% to 6.0% following our strong Q3 performance.

Jerald K. Dittmer: Looking at gross margin, we expect gross margin in the fourth quarter to land between 21.5 and 22.0% of net sales, with cost savings from the Dublin plant closure of $0.4 to $0.5 million offset by higher ocean freight. We will continue to prudently manage SG&A spending with a focus on investing in our growth initiatives and expect SG&A costs between $17.5 and $18.0 million for the fourth quarter, excluding restructuring charges and non-recurring stock compensation expense related to the revaluation of equity awards.

Michael Ressler: Looking at gross margin, we expect gross margin in the fourth quarter to land between 21, five and 22.0% of net sales with cost savings from the Dublin plant closure of 0.40 point $5 million.

Michael Ressler: Offset by higher Ocean freight costs.

Michael Ressler: We will continue to prudently manage SG&A spending with a focus on investing in our growth initiatives and expect SG&A costs between $17 five an $18.0 million for the fourth quarter.

Michael Ressler: Excluding restructuring charges and non recurring stock compensation expense related to the revaluation of equity awards.

Jerald K. Dittmer: The most significant drivers of variability in our forecasted guidance ranges are consumer demand changes, supply chain disruptions due to global conflict or political instability, and competitive pricing conditions, all of which will be largely influenced by external factors. Regarding our cash flow outlook, for the fourth quarter, we expect free cash flow in the range of $5 to $11 million. Near-term priorities for cash remain reducing debt, resourcing new innovation, and funding modest capital expenditures, mainly related to cost savings projects and business system updates.

Michael Ressler: Most significant drivers of variability in our forecasted guidance ranges, our consumer demand changes supply chain disruptions due to global conflict or political instability and competitive pricing conditions.

Michael Ressler: All of which will be largely influenced by external factors.

Michael Ressler: Regarding our cash flow outlook in the fourth quarter, we expect free cash flow in the range of $5 million to $11 million.

Michael Ressler: Near term priorities for cash remain reducing debt resourcing, new innovation and funding modest capital expenditures.

Michael Ressler: Mainly related to cost savings projects and business system updates.

Jerald K. Dittmer: In the fourth quarter, we expect capital expenditures to be between $0.2 and $0.4 million. We expect debt levels at the end of fiscal 2024 to be in the range of $4 to $10 million. The effective tax rate for fiscal 2024 is expected to be in the range of 30 to 32 percent. Now, I'll turn the call back over to Jerry to share his perspectives on our outlook.

Michael Ressler: The fourth quarter, we expect capital expenditures to be between 0.20 point $4 million.

Michael Ressler: We expect debt levels at the end of fiscal 2024 to be in the range of $4 million to $10 million.

Michael Ressler: The effective tax rate for fiscal 2024 is expected to be in the range of 30% to 32%.

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

Jerald K. Dittmer: Thanks [noise].

Operator: While we remain cognizant of macroeconomic factors which could impact our current outlook, I am optimistic about our ability to continue to gain share and confident we can maintain our profitable growth trajectory both in the near and long term. We have great momentum and are well-positioned to successfully deliver improved earnings and an even stronger balance sheet over the remainder of fiscal year 2024 and into fiscal year 2025. With that, we will open up the call to your questions. Operator. Thank you very much.

Jerald K. Dittmer: While we remain cognizant of macroeconomic factors, which could impact our current outlook I am optimistic about our ability to continue to gain share and confident we can maintain our profitable growth trajectory both in the near and long term.

Jerald K. Dittmer: We have great momentum and are well positioned to successfully deliver improved earnings and an even stronger balance sheet over the remainder of fiscal year 2024 and into fiscal year 2025 with that we will open up the call to your questions operator.

Speaker Change: Thank you very much.

Operator: Thank you very much. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. We will pause momentarily to assemble our roster. Today's first question comes from Anthony Lebiedzinski with Sidotian Company. Please go ahead.

Speaker Change: We'll now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Pause momentarily to assemble our roster.

Speaker Change: Today's first question comes from Anthony <unk> with Sidoti <unk> Company. Please go ahead.

Anthony Chester Lebiedzinski: Good morning, and thank you. First, congratulations, Derek, on your pending promotion, and congratulations, Jerry, on your pending retirement.

Anthony: Good morning, and thank you. So first congratulations Derek on your pending promotion and congratulations Jerry on your pending retirement.

Anthony Chester Lebiedzinski: So first, I guess the question here, so in terms of your top line, it came in above your guidance, as Mike had alluded to. So I guess first, what drove the outperformance? And then... You know, maybe if you could just share more details as far as growth in your core business versus sales coming from your growth initiatives like the big box expansions, Z Kleiner, etc.

Anthony: So first I guess question here so in terms of your topline.

Anthony: It came in above your guidance as Mike had.

Anthony: Alluded to so I guess first what drove the outperformance and then.

Anthony: Maybe you could if you could just share more details as far as growth in your core business versus our sales coming from your growth initiatives like the big box expansions decliner et cetera.

Jerald K. Dittmer: Yeah, thanks, Anthony. Thanks for your comments about Derek and me also. You know, I'll go first. It's our core business is actually performing quite well. I'll let Mike comment on that. But if you take our growth initiatives, you take what Derek talked about, our Charisma, our Flex initiative, our Zcliner, which is our health and wellness initiative, CaseGoods, which isn't even hitting the top line yet, per se, our big box and retail, eTailor initiative, all these things are clicking quite well.

Anthony: Okay.

Speaker Change: Yeah. Thanks, Anthony Thanks for your comments is for Derek and I also you know.

Speaker Change: I'll go first as Joe are our core business is actually performing quite well I'll, let Mike comment on that but if you take our growth initiatives should take or.

Michael Ressler: Derrick talks about our charisma, our flex initiative or the client or which is our health and wellness initiative case goods, which isn't even hitting the topline yet per se or big box in retail E. Tailor initiative. All of these things are clicking quite well and you have to take the pool of all of this together and it.

Jerald K. Dittmer: And you have to take the sum of all this together. And it's really encouraging, you know, where the company is going, especially when we see a, you know, almost 10% sales increase. And our belief is that we can continue this, you know, going forward too.

Michael Ressler: It's really encouraging you know where the company is go on especially when we see an almost 10% sales increase and our belief is that we can continue this.

Michael Ressler: Going forward too.

Michael Ressler: Yeah, Anthony, I would just add, so in terms of your question on, you know, how much of the growth is coming from the core versus kind of our initiatives, so of the $8.2 million, over $7 million of that is coming from kind of our growth initiatives, which includes the Flex, Z-Kleiner, and then, like, the strategic account penetration, but there still was over 1% growth in our core market with retail in our existing product category, so, you know, we are growing in the core, you know, in a challenging market, but we're also getting the benefits of, you know, those growth initiatives.

Michael Ressler: Yeah, Anthony I would just add so in terms of your question on how much of the growth is coming from the core versus kind of our initiatives. So of the $8 2 million over $7 million of that is coming from kind of our growth initiatives, which includes the flax decliner.

Michael Ressler: And then like the strategic account penetration, but but there still was over 1% growth in our core market with retail in our in our existing product categories. So we are growing in the core and you know in a challenging market, but we're also getting the benefits of those growth initiatives.

Anthony Chester Lebiedzinski: Perfect. Okay, that's great to hear.

Speaker Change: Perfect. Okay, that's great to hear and then.

Derek Paul Schmidt: And then, I'm just wondering, you know, just sticking to the top line here. So in terms of your sales channels, you talked about sales growing and outperforming and brick and mortar versus e-commerce. How do you see that dynamic playing out near term and longer term? I'm just curious about that. And then whether or not, as far as, you know, how to think about the margin profile for those different sales channels, where is there anything different or more or less the same?

Speaker Change: Just wondering you know are just sticking to the top line here. So in terms of your sales channels, you talked about the sales growing and outperforming in the brick and mortar.

Speaker Change: Versus E Commerce, how do you see that dynamic playing out near term and longer term do you just curious about that and then.

Speaker Change: Whether or not as far as you know how to think about margin profile to those different sales channels, where it is there anything different or more or less kind of the same.

Derek Paul Schmidt: Yeah, I'll start. This is Derek.

Speaker Change: Yes and ill.

Speaker Change: I'll start this is Derek so in terms of kind of near term I mean, we're we're performing exceptionally well at retail and so even if you think about.

Derek Paul Schmidt: So in terms of kind of near term, I mean, we're performing exceptionally well at retail. And so even if you think about some of the items, the growth initiatives that Jerry mentioned, you know, Z Kleiner, like Charisma, again, we're having really nice success kind of within our traditional independent retailers, which, you know, as you know, are vitally important to our business. So we believe in the near term, we're going to continue to build upon that strong momentum within retail.

Derek Paul Schmidt: Some of the items the growth initiatives that Gerry mentioned like Z client or like charisma again, we're having really nice success kind of within in our traditional independent retailers, which as you know are vitally important to our business. So.

Speaker Change: We believe in the near term, we're going to continue to build.

Speaker Change: Build upon that strong momentum within within retail.

Derek Paul Schmidt: But longer term, we've talked about, you know, we want to position our brands everywhere consumers want to buy furniture. And so, longer term, we would continue to expect that we would expand into big box, retail, and other sales channels that we believe are relevant long term for furniture purchasing. In terms of the kind of margin impact of that, we believe, over the long term, you know, all these channels should have a similar margin profile. Maybe in the near term, they're a bit different, but longer term, we believe, again, profitability, we should be indifferent between the channels.

Speaker Change: But one longer term, we've talked about we want to position our brands everywhere consumers want to buy furniture.

Speaker Change: And so longer term, we would continue to expect that we would expand in the big box E tail.

Speaker Change: Other sales channels that we believe are relevant long term.

Speaker Change: For for furniture purchasing.

Speaker Change: In terms of kind of the margin impact of that.

Speaker Change: We believe over the long term.

Speaker Change: All of these channels should have a similar margin profile maybe in the near term there are a bit different but longer term. We believe again profitability, we should be indifferent between the channel mix.

Anthony Chester Lebiedzinski: Gotcha. Yeah, thanks, Derek, for that. And then, so, yeah, you've done a nice job with the improvement of your gross margin, for sure. Can you talk about your confidence level, about your ability to further improve on that in fiscal 25 and beyond?

Speaker Change: Gotcha, Thanks, Derrick for that and then so you've done a nice job with the improvement of your gross margin for sure.

Speaker Change: Can you talk about your confidence level about your ability to further improve on that in fiscal 'twenty five and beyond.

Michael Ressler: Anthony, I'll take that one. So yeah, we feel really good about kind of where we're at right now. We've had a lot of success with our cost savings initiatives and kind of transformed our product portfolio, which has a much better profit, you know, profile than the legacy products that we've retired. But we feel that we have positive processes and structure in place that we're going to be able to continue to maintain and even expand our gross margin once we start to get the benefit of some higher sales.

Derrick: Anthony I'll take that one so yeah, we feel really good about kind of where we're at right now.

Anthony: We've had a lot of success with our cost savings initiatives and kind of transformed kind of our product portfolio.

Anthony: Which has much better profit profiles than what the legacy products are that that we've retired but we feel that we are positive.

Anthony: Processes and structure in place that we're going to be able to continue to maintain and even expand our gross margin. Once we start to get the benefit of some higher sales.

Derek Paul Schmidt: Just to reinforce, Anthony, I mean, near term, we talked about the drivers being fourfold, right? The cost savings, the new product portfolio mix, you know, pricing discipline, and then the sales operating leverage. I think on a longer term basis, we still feel confident that we can expand margins. The drivers will narrow, though, to primarily product mix, higher margins on new products, and then continued sales operating leverage.

Speaker Change: Got you.

Speaker Change: And then last just to reinforce Anthony I mean near term I mean, we talked about the drivers being four fold right.

Speaker Change: The cost savings to the new product portfolio mix.

Speaker Change: Pricing discipline and then the sales operating leverage I think on a longer term basis, we still feel confident that we can expand margins there.

Speaker Change: The drivers of all narrow, although two primarily product mix.

Speaker Change: Higher margins on new product and then continued sales operating leverage so.

Speaker Change: Mhm Gotcha, Okay, and then lastly for me so and so as you look to pay off your debt by next year can you talk about like how your capital allocation priorities may change and would that perhaps involve doing any acquisitions.

Anthony Chester Lebiedzinski: Lastly, for me, as you look to pay off your debt by next year, can you talk about how your capital allocation priorities may change, and would that perhaps involve making any acquisitions?

Michael Ressler: Yeah, Anthony. So we regularly review, you know, our capital allocation strategy with the board. Near term, you know, we want to continue to pay down debt, and we'll continue to, you know, make a dividend a priority. But then we've talked about, you know, beginning to accumulate cash for potential value-enhancing acquisitions. You know, but any type of acquisition needs to align kind of with our strategy, and it needs to create shareholder value. And, you know, in the event that we're not able to, you know, identify an investment that creates value, our board will look at, you know, methods to return capital to shareholders.

Speaker Change: Yes Anthony.

Speaker Change: So we regularly review our capital allocation strategy with the board on near term, we want to continue to pay down debt and we will continue to make a dividend a priority, but then we've talked about beginning to accumulate cash for potential value enhancing acquisitions.

Speaker Change: <unk>.

Anthony: But any type of acquisition it needs to align with our strategy and it needs to create shareholder value and then in the event that we're not able to.

Anthony: Identify an investment that creates value are our board will look at.

Anthony: Methods to return capital to shareholders.

Anthony Chester Lebiedzinski: Got it. Well, thank you very much and best of luck.

Speaker Change: Got it well, thank you very much and best of luck.

Jerald K. Dittmer: Thanks, Anthony.

Speaker Change: Alright, Thanks Anthony.

Operator: Thank you. The next question comes from Budd Bugatch with Water Tower Research. Please go ahead.

Speaker Change: Thank you. The next question comes from the bed bug etch with water Tower research. Please go ahead.

Budd Bugatch: Good morning, Jerry. Congratulations on your retirement. I can tell you it's not all that it's cracked up to be. Derek, congratulations on your ascension to the leadership role and congratulations on your performance. I do have a few questions.

Speaker Change: Good morning, Jerry Congratulations on your retirement I can tell you it's not all of its cracked up to be.

Speaker Change: Okay.

Speaker Change: And Derrick congratulations to you on your attention to the to the leadership role.

Speaker Change: And congratulations on your performance.

Speaker Change: And.

Speaker Change: I do have a few questions.

Budd Bugatch: Last quarter, I think Derek, you said to me that you were striving for 23% gross margin. It was still your aspiration in the mid to long term, over three to five years, and you made some significant progress toward that. My next question goes to the same for SG&A. It looks at the current level at 16.5%. The leverage on the increased sales, excluding the restructuring charge, was really just under 20 basis points. But it looks like most of that is variable. What are we missing here in terms of SG&A? Where are the opportunities?

Speaker Change: Last quarter I think Derek you said to me that you were striving for.

Speaker Change: 23% gross margin, we still your aspiration in the mid to long term over three to five years and you've made significant progress to that.

Budd Bugatch: My next question goes to how about the same for SG&A. It some it looks so you know what.

Speaker Change: At the current level at 16, 5% the the leverage on the increased sales excluding the restructuring charge was really just under 20 basis points and it looks for therefore, it looks like most of that's variable what are we what are we missing here in <unk>.

Budd Bugatch: Zero SG&A where are the opportunities.

Derek Paul Schmidt: Yeah, I think in terms of SG&A, long term, we aspire to get SG&A between 15 and 16%. So again, the long-term aspiration is an 8% operating income, which in order to get there is a 23% gross margin and an SG&A and that kind of mid, mid 15% kind of range. In terms of current SG&A, I mean, there are two things maybe pushing it up a little bit higher. Number one, you know, we talked about our independent retail channel is doing exceptionally well right now.

Speaker Change: Yes, I think in terms of SG&A.

Long term, we aspire to get SG&A between 15, and 16%. So again long longer term aspiration is an 8% operating income.

Derek Paul Schmidt: Which in order to get there is a 23% gross margin.

Derek Paul Schmidt: You know in SG&A and that kind of mid mid 15% kind of range.

Derek Paul Schmidt: In terms of current SG&A.

Derek Paul Schmidt: I mean, there's two things maybe pushing it up a little bit higher.

Derek Paul Schmidt: Number one you know we've talked about our independent retail channel is doing exceptionally well right now I mean, we're growing the business.

Derek Paul Schmidt: I mean, we're growing the business, and that does come up with a higher variable SG&A load because of sales commissions because of co-op to our retailers. And so, again, heavier SG&A, but, you know, it's more than paid for by an attractive kind of gross margin. And then, because of our performances exceeding expectations, we are accruing a higher incentive payout for this year. Longer term, we're going to continue to prudently invest in our growth initiatives, but we believe our top line will grow faster than SG&A, and we'll continue to see SG&A as a percent of sales decline as a result.

Derek Paul Schmidt: That does come up with a higher variable SG&A load because of sales commissions because of co op to our retailers.

Derek Paul Schmidt: And so so again heavier SG&A, but.

Derek Paul Schmidt: It's more than paid for by an attractive gross margin.

Derek Paul Schmidt: And then because of our performance is exceeding expectations, we are accruing the higher iron and incentive payout for this year longer term.

Derek Paul Schmidt: We're going to continue to prudently invest in our growth initiatives, but we believe are our top line will grow faster than SG&A and we will continue to see SG&A as a percent of sales decline as a result.

Budd Bugatch: So I'm still a little bit confused as to where the opportunities are on SGA. How do you get that to that mid-15 or low 15% range to get to your 8% up margin?

Budd Bugatch: So I'm still a little bit confused as to where the opportunities are sharing how do you get that to that mid 15.

Budd Bugatch: Our low 15% range to get to your 8% op margin.

Derek Paul Schmidt: Yeah, but we've taken actions this year that will materially reduce SG&A going into next year. And so again, that's organizational structure and talent. I won't go into the details, but again, those are already actions that have taken place and will be realized in fiscal year 25.

Budd Bugatch: But we've taken actions this year that will materially reduce SG&A going into next year.

Derek Paul Schmidt: So again, that's the organizational structure and talent.

Derek Paul Schmidt: I won't go into the details but.

Derek Paul Schmidt: Those are already actions that have taken place in <unk>.

Derek Paul Schmidt: We will be realized in fiscal year 'twenty five.

Budd Bugatch: So just to continue to make sure I understand, that's people costs or kind of structural costs like you know structural costs like insurance and rent and stuff like that, or how do what's the balance between the two? Mostly people costs. And looking at the top line, can you give us maybe a little bit more color in terms of some numbers as to how e-comm is doing? I saw the difference, but I wasn't quite sure that I saw the penetration of your customers who are primarily e-comm based versus your big box guys, the Costco's. What do we look like in terms of that? What do we think about upholstery versus case goods? What's the penetration rate of the...

Derek Paul Schmidt: So just to continue to make sure I understand that that's people costs or kind of structural.

Budd Bugatch: Structural correlate to insurance and rent and stuff like that or how do we.

Budd Bugatch: What's the what's the balance between the two.

Budd Bugatch: Largely people costs.

Speaker Change: Got you okay.

Budd Bugatch: Looking at the top line can you give us maybe a little bit more color in terms of some numbers as to how E. Com is drew and I saw that differential I wasn't quite sure that I saw the the penetration of your your customers who are primarily you come base.

Budd Bugatch: Versus your big box guys from Costco's.

Budd Bugatch: What do we look like in terms of that how do we how do we think about upholstery versus case goods.

Budd Bugatch: What's the penetration of the year.

Budd Bugatch: Yeah.

Budd Bugatch: Sales line.

Derek Paul Schmidt: I think you're asking two questions. One is, what does the profile look like within a product category mix? And so if you think about, you know, overall from a company perspective, we grew this quarter at 8.2%. If you break it out into categories, now you source soft seeding was up double digits. Manufacturing soft seeding was up double digits. Case goods were down pretty substantially, but we're in the process of resetting that business.

Speaker Change: But I think you're asking two questions. One is what does the profile look like within a product category mix and so if you think about overall from a company perspective, we grew this quarter at eight 2%. If you break it out into categories and I'll use source soft seating was up double digits.

Derek Paul Schmidt: Manufacturing soft seating was up double digits.

Derek Paul Schmidt: Case goods was was down pretty substantially but we're in the process of resetting that business.

Derek Paul Schmidt: As you saw at April High Point Market, we've come up with a very fresh, compelling line of new case goods. And so, longer term, that's going to be a growth lever. But in the near term, it is weighing on the overall portfolio growth. And then e-commerce and our Homestyles brand have been down double digits. And that largely mirrors what we're seeing in the external environment.

Derek Paul Schmidt: As you saw in April high point market.

Derek Paul Schmidt: We've come up with a very fresh compelling line of new case goods and so we believe longer term that is going to be a growth lever, but in the near term. It is it is weighing on the overall portfolio growth.

Derek Paul Schmidt: And then and then e-commerce, and our home styles brand has been down double digits.

Derek Paul Schmidt: And that's largely mirrors, what we're seeing in the external environment.

Derek Paul Schmidt: So we've heard from our large customers, Amazon, and Wayfair, that we're competing consistently or better than the categories that we participate in. So the overall message is, you know, really the core of our business, which is sourcing and manufacturing soft seeding, is doing exceptionally well. And we're going to continue to invest in that, and that will largely manifest itself in terms of new product introductions, as well as new forms of innovation.

Derek Paul Schmidt: So we've heard from our large customers Amazon wave, there that we're competing consistently or better than the categories.

Derek Paul Schmidt: We participate in so the overall messages.

Derek Paul Schmidt: The really the core core of our business, which is sourced in manufacturing soft seating is doing exceptionally well.

Derek Paul Schmidt: And we're going to continue to invest in that and that's largely will manifest itself in terms of kind of new product introductions as well as new forms of innovation.

Derek Paul Schmidt: On the case goods side, like I said, you saw a really compelling lineup of new products here at April Point or April High Point Market. And then Costco continues to grow at a modest pace, and it's profitable. And then independent retail is doing exceptionally well right now. So that's kind of the dynamics of what's going on within the business. Is that helpful?

Derek Paul Schmidt: On the case goods side like I said, you saw a really compelling lineup of new product here at <unk>.

Derek Paul Schmidt: April point or April high point market.

Derek Paul Schmidt: And then in terms of the channel mix.

Speaker Change: You know of.

Derek Paul Schmidt: Costco continues to grow at a at a modest pace and is profitable.

Derek Paul Schmidt: And then independent retailers doing exceptionally well right now so.

Derek Paul Schmidt: That's kind of the the dynamics of what's going on within the business is that helpful.

Budd Bugatch: It is very helpful. And independent retail, is that primarily the same location, same store, same client base? Or is there a growth in new clients, new retailers, new dealers that is accounting for a substantial portion of the growth?

Speaker Change: It is very helpful. And then independent retail is that primarily same location same store same client based or is there a growth in new new clients.

Speaker Change: Clients, new retailers, new dealers that is accounting for a substantial portion of the growth.

Derek Paul Schmidt: The largest portion of the growth is that we're gaining additional placements within existing retailers, especially at what we consider our largest, most critical strategic account. So we believe that, from a distribution standpoint, we're fairly well aligned with who's who across the industry. Now it's just a matter of continuing to gain share, and we're realizing that in terms of additional floor placements within their stores.

Speaker Change: The largest portion of the growth growth is we're gaining additional placements within existing retailers, especially at what we consider our largest most critical strategic accounts.

Derek Paul Schmidt: No.

Derek Paul Schmidt: We believe that from a distribution standpoint, we're fairly well aligned with who's who.

Derek Paul Schmidt: Cross the industry now, it's just a matter of continuing to gain share.

Derek Paul Schmidt: And we're realizing that in terms of additional or placements within their stores.

Budd Bugatch: And are you seeing those floor placements too, and you talked about the case goods, and that's really critical for case goods to get them placed on a floor. How do those placements look year over year or against your goals?

Derek Paul Schmidt: And are you seeing with square placements too and you talked about the case goods and that's really critical for case goods is to get it placed on our floor.

Budd Bugatch: How does how do those placements look year over year or two.

Budd Bugatch: To your to your goals.

Derek Paul Schmidt: Yeah, so again, we just came up with a fresh lineup of really good-looking products. We have activated virtually all of that product shown at market, which again, we make the decision of what to activate and what not to activate based upon retailer feedback and commitments. And so, most of that product here has already been, they'll go through their first cuts, some of the sales there, but feedback was very strong. I mean, basically, we had multiple customers indicate, you know what? Clearly, Flexsteel's back in the case goods business. So we're strategically committed to that category, we're putting talent and resources behind it, and we'll continue to bring forth, I think, aggressive and compelling new product introductions.

Derek Paul Schmidt: Yes. So again, we just came up with a fresh lineup of really good looking product.

Derek Paul Schmidt: We have activated virtually all of that product shown at market.

Derek Paul Schmidt: Which again, we make the decision what to activate what and what not apt to activate based upon retailer feedback and commitments.

Derek Paul Schmidt: And so most of that product here has already been there they'll go through their first cuttings product will arrive this fall.

Derek Paul Schmidt: So I mean, that's when we'll start to realize some some of the sales there but feedback was was very strong I mean, basically we had multiple customers indicate.

Derek Paul Schmidt: Clearly flex deals back in the case goods business.

Derek Paul Schmidt: So we are strategically committed to that category, we're putting talent and resources behind it and we will continue to bring forth I can think of aggressive and compelling new product introductions.

Budd Bugatch: Okay, I remember when Flexsteel got into the case goods business. So, you're correct though; it will ride. Typically, we don't see new case goods, introductions, particularly with the sourcing situation in the industry, the way it is now with relying so heavily on overseas sourcing, that gets into the product results until really just about the end of the time we go to market in October; we'll start to see that stuff hit the floors at that time.

Speaker Change: Okay, I remember well.

Budd Bugatch: <unk> got into the case goods business.

Budd Bugatch: Youre correct, we'll ride Youre typically we don't see new case goods.

Budd Bugatch: Introductions, particularly with the sourcing situation in the industry. The way it is now with relying so heavily on on overseas sourcing.

Budd Bugatch: That gets into the product.

Budd Bugatch:

Budd Bugatch: <unk> until really just about the end of the time, we go to market and in October we will start to write that stuff hit the floors.

Budd Bugatch: Is that the right way to think about it? So we're really looking at a next year kind of impact. Exactly. Yeah.

Speaker Change: At that time is that the right way to think about it. So we're really looking at.

Budd Bugatch: Our next year kind of impact exactly yep.

Budd Bugatch: Okay, well, congratulations to you, Derek. I look forward to our continued conversations, and best wishes to you, Jerry, on your retirement. I suspect you'll find a lot to do.

Speaker Change: Got you, Okay, well congratulations to you Derek I look forward to continued conversations and best.

Budd Bugatch: Best wishes to you Jerry on the on your retirement I suspect youll find the lots to do.

Jerald K. Dittmer: Thanks, Budd. Thanks, Budd.

Speaker Change: Thanks, but think but.

Operator: Thank you. The next question is from John Deysher with Pinnacle. Please go ahead.

Speaker Change: Thank you. The next question is from John <unk> with Pinnacle. Please go ahead.

John Eric Deysher: Hi, good morning. Thanks for taking my questions, most of which have been answered. Just a couple of minor ones. What was the backlog at the end of the quarter, please?

John Eric Deysher: Hi, good morning, Thanks for taking my questions most of which have been answered.

John Eric Deysher: Just a couple of minor ones what was the backlog at the end of the quarter. Please.

Michael Ressler: the backlog into that $61.5 million, which was growth over, you know, which was about six and a half million dollars growth over where it ended at the end of Q2.

John Eric Deysher: The backlog ended at $61 5 million.

Michael Ressler: Which was growth over.

Michael Ressler: Which was about $6 $5 million growth over where it ended at the end of Q2.

Speaker Change: Yeah, solid improvement and what where e-commerce sales this quarter versus a year ago. Please.

John Eric Deysher: And what were e-commerce sales this quarter versus a year ago? Please?

Derek Paul Schmidt: Yeah, we don't share absolute numbers, but as I indicated in the last question from Bud, I mean, they were down double digits. So again, that's reflective of, I think, what we're seeing externally in that channel, down double digits from a year ago or from the prior quarter.

Speaker Change: Yes, we do.

John Eric Deysher: Don't share absolute numbers, but that as I indicated in the last and Bud.

Derek Paul Schmidt: Kind of question I mean, they were down double digits. So again, that's reflective of I think what we're seeing externally in that channel.

Derek Paul Schmidt: Down double digits from a year ago or from the prior quarter.

Derek Paul Schmidt: know from year over year, year over year down double digits.

Derek Paul Schmidt: No from year over year.

Derek Paul Schmidt: Year over year down double digits.

Operator: Thank you. This concludes today's question and answer session. I would now like to hand the call back to Jerry Dittmer for any closing remarks.

Jerald K. Dittmer: Is that correct.

Operator: Correct.

Jerald K. Dittmer: Thank you.

Operator: Thank you. This concludes today's question and answer session I would now like to hand, the call back to Jerry Dittmer for any closing remarks.

Jerald K. Dittmer: In closing, I want to express my gratitude for the privilege to serve the Flexsteel family. I am proud of our collective successes. I believe the best is yet to come, and with Derek's leadership, he will propel the organization to new heights. I have no doubt that Flexsteel will continue to flourish thanks to the passion and commitment of all our employees and partners. Everyone has a great day. Thanks.

Jerald K. Dittmer: Thank you in closing I want to express my gratitude for the privilege to serve the flex fuel family.

Jerald K. Dittmer: I am proud of our collective successes I.

Jerald K. Dittmer: I believe the best is yet to come in with <unk> leadership propel the organization to new Heights.

Jerald K. Dittmer: I have no doubt that flex fuel will continue to flourish. Thanks to the passion and commitment of all our employees and partners everyone have a great day.

Operator: The conference is now concluded. Thank you for your participation. You may now disconnect your line.

Operator: The conference has now concluded.

Operator: Thank you for your participation you may now disconnect your lines.

Operator: [music].