Q4 2024 Flexsteel Industries Inc Earnings Call

August 20, 2024

Good day.

Operator: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: Welcome to the Mornings Results conference call. All participants will be in listen-only mode.

Speaker Change: And welcome to the fourth quarter fiscal year 2024 earnings results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star them one on a touch-tone phone. To withdraw your question, please press star, then two.

Operator: After today's presentation, there will be an opportunity to ask questions.

Operator: To ask a question, you may press star, then 1 on a touch-tone phone.

Operator: To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two.

Speaker Change: after today's presentation there will be an opportunity to ask questions

Operator: To withdraw your question, please press star then 2.

Speaker Change: to ask a question you may press star them one on a touch tone phone to withdraw your question please press star then to

Operator: Please note this event is being recorded.

Operator: Please note, this event is being recorded.

Michael Ressler: Please now like to turn the conference over to Mike Ressler, Chief Financial Officer. Please go ahead. Thank you and welcome to today's call to discuss Flexsteel Industries' Earth Quarter in fiscal year 2024 financial results. Our earnings release, which we issued after market closed yesterday, Monday, August 19th, is available on the Investor Relations section of our website at www.flexsteel.com under News and Events.

Operator: I would now like to turn the conference over to Mike Ressler, Chief Financial Officer.

Speaker Change: Please note this event is being recorded.

mike wrestler: i would now like to turn the conference over to mike wrestler chief financial officer please go ahead

Operator: Please go ahead.

Michael Ressler: Thank you and welcome to today's call to discuss Flexsteel Industries' fourth quarter and fiscal year 2024 financial results. Our earnings release, which we issued after market closed yesterday, Monday, August 19th, is available on the Investor Relations section of our website at www.flexsteel.com under News & Events.

mike wrestler: Thank you and welcome to today's call to discuss Flexsteel Industries' fourth quarter and fiscal year 2024 financial results.

Mike Ressler: Thank you, and welcome to today's call to discuss Flexsteel Industries' fourth quarter and fiscal year 2024 financial results.

Speaker Change: Our earnings release, which we issued after market closed yesterday, Monday, August 19th, is available on the investor relations section of our website at www.flexsteel.com under news and events.

Michael Ressler: I'm here today with Derek Schmidt, president and chief executive officer. On today's call, we will provide prepared remarks, and we'll 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 the forward-looking statements. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K, as updated by our subsequent quarterly reports on Form 10-Q and other SEC filings, as applicable.

Michael Ressler: I'm here today with Derek Schmidt, President and Chief Executive Officer.

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

Speaker Change: I'm here today with Derek Schmidt, President and Chief Executive Officer.

Speaker Change: on today's call we will provide prepared remarks and we'll then open the call toyour questions

Michael Ressler: 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 the forward-looking statement. Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K, as updated by our subsequent quarterly reports on Form 10-Q, and other SEC filings as applicable.

Speaker Change: before we began 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

Speaker Change: risks and uncertainties include but are not limited to those that are described in our most recent annual report and form ten -k as updated by our subsequent quarterly reports on form ten -q and other sec filings as applicable

Michael Ressler: These forward-looking statements speak only as 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. Press release, available on the website, contains financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures.

Michael Ressler: 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.

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: 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: press release available on the website contains a financial and other quantitative information to be discussed today as well as the reconciliation of the gaap to non-gaap measures

Mike Ressler: Our earnings release, which we issued after market closed yesterday, Monday, August 19th, is available on the investor relations section of our website at www.flexsteel.com under news and events.

Derek Schmidt: And with that, I'll turn the call over to Derek Schmidt. Derek? Good morning, and thank you for joining us today. I am pleased to share with you our fourth quarter in fiscal year 2024 results. We continued our positive momentum in the fourth quarter, delivering 4.7% sales growth over the prior year period, near the top end of our guidance range. Despite continued weak demand conditions for our industry, our fourth quarter results represent our third consecutive quarter of mid to high single-digit year-to-year growth. I'm confident that our growth strategies are working. We are winning and gaining share, and we are working aggressively to accelerate our positive sales momentum going into fiscal year 2025.

Mike Ressler: I'm here today with Derek Schmidt, President and Chief Executive Officer.

Michael Ressler: 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 derek mit erreic

Speaker Change: good morning and thank you for joining us today i am pleased to share with you our fourth quarter in fiscal year two thousand andtwenty four results

Michael Ressler: And with that, I'll turn the call over to Derek Schmidt.

Speaker Change: we continued our positive momentum in the fourth quarter delivering four point seven percent sales growth over the prior year period near the top end of our guidance range

Speaker Change: despite continued weak demand conditions for our industry our fourths quarter results represent our third consecutive quarter of mid-to high single-digit year-over-year growth and confident that our growth strategies are working

Derek Schmidt: Good morning and thank you for joining us today.

Speaker Change: We are winning and gaining share, and we are working aggressively to accelerate our positive sales momentum going into fiscal year 2025.

Derek Schmidt: Our strong execution over the past 12 months resulted in annual sales growth of 4.8%. which we feel is exceptional performance relative to the industry and the many industry participants who realize double-digit declines during the same period due to challenging industry dynamics. Our strong performance in fiscal year 2024 not only reflects our team's intense and aggressive focus on growing the business, but also the attractive returns from continued investments in innovation, new product development, customer experience, and marketing, which are unlocking growth in our core markets and opening doors to new growth and expanded markets with long-term potential.

Derek Schmidt: I am pleased to share with you our fourth quarter and fiscal year 2024 results. We continued our positive momentum in the fourth quarter, delivering 4.7 percent sales growth over the prior year period near the top end of our guidance range. Despite continued weak demand conditions for our industry, our fourth quarter results represent our third consecutive quarter of mid to high single digit year over year growth.

Speaker Change: our strong execution over the past twelve months resulted in annual sales growth of four point eight percent

Derek Schmidt: I'm confident that our growth strategies are working. We are winning and gaining share, and we are working aggressively to accelerate our positive sales momentum going into fiscal year 2025. Our strong execution over the past 12 months resulted in annual sales growth of 4.8%, which we feel is exceptional performance relative to the industry and the many industry participants who realized double-digit declines during the same period due to challenging industry dynamics. Our strong performance in fiscal year 2024 not only reflects our team's intense and aggressive focus on growing the business, but also the attractive returns from continued investments in innovation, new product development, customer experience, and marketing, which are unlocking growth in our core markets and opening doors to new growth and expanded markets with long-term potential.

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

Speaker Change: which we feel as exceptional performance relative to the industry and the many industry participants who realize double-digit declines during the same period due to challenging industry dynamics

Mike 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, as updated by our subsequent quarterly reports on Form 10-Q, and other SEC filings as applicable.

Speaker Change: our strong performance in fiscal yeartwo thousand and twenty-four not only reflects our teams and intense and aggressive focus on growing the business but also the attractive returns from continued investments in innovation

Mike Ressler: 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.

Mike Ressler: Additionally, we may refer to non-GAAP measures, which are intended to supplement, but not substitute, for the most directly comparable GAAP measures.

Mike Ressler: 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.

Mike Ressler: And with that, I'll turn the call over to Derek Schmidt.

Mike Ressler: Derek?

Speaker Change: new product development, customer experience, and marketing.

Speaker Change: which are unlocking growth in our core markets and opening doors to new growth and expanded markets with long-term potential

Derek Schmidt: At the same time, we continue to improve our profitability. Adjusted operating margin was 5.6% in the fourth quarter, up compared to 4% in the prior year quarter and represents our third consecutive quarter of sequential quarter-over-quarter growth in adjusted operating margin. For fiscal year 2024, we grew our adjusted operating income to $18.3 million, or a hundred and 26% year-over-year improvement. The keys to our consistent profit improvement have been our sales growth, strong operational execution and efficiencies, robust cost savings, and disciplined product portfolio management, all of which have strong momentum and will continue to be catalysts for continued margin expansion in fiscal year 2025.

Derek Schmidt: At the same time, we continue to improve our profitability. Adjusted operating margin was 5.6% in the fourth quarter, up compared to 4% in the prior quarter, and represents our third consecutive quarter of sequential quarter-over-quarter growth in adjusted operating margin.

Speaker Change: at the same time we continue to improve our profitability

Operator: All participants will be in listen only mode.

Operator: All participants will be in listen only mode. Should you need assistance, please signally conference specialist by pressing the star key followed by zero.

Speaker Change: adjusted operating margin was five point six percent in the fourth quarter

Operator: Should you need assistance, please signally conference specialist by pressing the star key followed by zero.

Speaker Change: up compared to 4% in the prior quarter and represents our third consecutive quarter of sequential quarter-over-quarter growth in adjusted operating margin.

Operator: After today's presentation there will be an opportunity to ask questions.

Operator: After today's presentation there will be an opportunity to ask questions. To ask a question, you may press star them one on a touch tone phone. To withdraw your question, please press star then two.

Derek Schmidt: For fiscal year 2024, we grew our adjusted operating income to $18.3 million, for a 126% year-over-year improvement. The keys to our consistent profit improvement have been our sales growth. Strong Operational Execution and Efficiencies, Robust Cost Savings and Disciplined Product Portfolio Management all of which have strong momentum and will continue to be catalysts for continued margin expansion in fiscal year 2025.

Operator: To ask a question, you may press star them one on a touch tone phone. To withdraw your question, please press star then two.

Speaker Change: for fiscal year two thousand and twenty-four we grew our adjusted operating income to eighteen point three million dollars for a hundred and twenty- six percent year-over-year improvement

Mike Ressler: Please now like to turn the conference over to Mike Ressler, Chief Financial Officer.

Speaker Change: the keys to our consistent profit improvement have been our sales growth strong operational execution and efficiencies robust cost savings and disciplinineed product portfolio management

Mike Ressler: Please go ahead.

Speaker Change: all of which have strong momentum and will continue to be catalysts for a continued margin expansion in fiscal year two thousand and twenty-five

Derek Schmidt: Good morning, and thank you for joining us today.

Derek Schmidt: I'm also very pleased with the progress we've made to improve working capital efficiency and strength in our balance sheet. Inventories were reduced by over $25 million in fiscal year 2024 while sustaining strong customer service levels. Coupled with higher profits, solid working capital management helped generate almost $32 million in operating cash flow and eliminated most of our bank debt. In the recent period where we've seen numerous industry bankruptcies and many industry participants continue to realize meaningful year-over-year declines in both sales and profits, Flex deal is financially strong, growing sales, improving profitability, generating cash and aggressively investing for the future.

Derek Schmidt: I'm also very pleased with the progress we've made to improve working capital efficiency and strengthen our balance. Inventories were reduced by over $25 million in fiscal year 2024, while sustaining strong customer service levels, coupled with higher profits. Solid Working Capital Management helped generate almost $32 million in operating cash flow and eliminated most of our bank debt.

Speaker Change: i'm also very pleased with the progress we've made to improve working capital efficiency and strengthen our balance sheet

Mike Ressler: Thank you and welcome to today's call to discuss Flexsteel Industries' Earth Quarter in fiscal year 2024 financial results.

Michael Ressler: I'm here today with Derek Schmidt, President and Chief Executive Officer. On today's call, we will provide prepared remarks and we'll 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 different materially from those expressed in the forward-looking statements.

Speaker Change: inventories were reduced by over twenty-five million dollars in fiscal year two thousand and twenty-four while sustaining strong customer service levels

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

Speaker Change: coupled with higher profits solid working capital management helped generate almost thirty-two million dollars in operating cash flow and eliminated most of our bank debt

Derek Schmidt: In the recent period, where we've seen numerous industry bankruptcies, and many industry participants continue to realize meaningful year-over-year declines in both sales and profits, Flexsteel is financially strong, growing sales, improving profitability, generating cash, and aggressively investing for the future. Our customers, investors, and other business partners should all have confidence that Flexsteel is well-positioned long-term for profitable, sustainable growth.

Speaker Change: In the recent period where we've seen numerous industry bankruptcies and many industry participants continue to realize meaningful year-over-year declines in both sales and profits,

Derek Schmidt: I am pleased to share with you our fourth quarter and fiscal year 2024 results. We continued our positive momentum in the fourth quarter, delivering 4.7% sales growth over the prior year period, near the top end of our guidance range. Despite continued weak demand conditions for our industry, our fourth quarter results represent our third consecutive quarter of mid- to high-single-digit year-over-year growth.

lets steal: lets steal is financially strong thegrowing sales improving profitability generating cash and aggressively investing for the future

Derek Schmidt: Our strong performance in fiscal year 2024 not only reflects our team's intense and aggressive focus on growing the business but also the attractive returns from continued investments in innovation, new product development, customer experience, and marketing which are unlocking growth in our core markets and opening doors to new growth and expanded markets with long-term potential.

Derek Schmidt: Our customers, investors, and other business partners should all have confidence that Flex Deal is well-positioned long-term for profitable, sustainable growth.

lets steal: our customers investors and other business partners should all have confidence that flex deal is well positioned long term for profitable sustainable growth

Derek Schmidt: As we look forward to fiscal year 2025, consumer demand is expected to continue to be a major headwind for the industry in the near term. The impact of inflation, albeit slowing, and high interest rates continue to take a toll on consumers' cost of living and their overall confidence, and on the housing market, which is an important underlying driver for furniture demand. Until US consumers regain confidence in the economy and the outlook for these structural concerns, there's not an obvious catalyst to meaningfully move consumer demand for furniture in a more positive direction. That said, we are deeply committed to continuing to grow and gain share under challenging industry conditions, and we will remain aggressive with our strategies and investments to pursue new growth.

lets steal: as we look forward to fiscal year two thousand and twenty-five we consumer demand is expected to continue to be a major headwind for the industry in the near term

lets steal: the impact of inflation albe a slowing and high interest rates continue to take a toll on consumers cost of living and their overall confidence and on the housing market which is an important underlying driver for furniture demand

Mike Ressler: Our earnings release, which we issued after market closed yesterday, Monday, August 19th, is available on the Investor Relations section of our website at www.flexsteel.com under news and events.

Derek Schmidt: Until U.S. consumers regain confidence in the economy and the outlook for these structural concerns, there's not an obvious catalyst to meaningfully move consumer demand for furniture in a more positive direction.

lets steal: Until U.S. consumers regain confidence in the economy and the outlook for these structural concerns, there's not an obvious catalyst to meaningfully move consumer demand for furniture in a more positive direction.

Mike Ressler: I'm here today with Derek Schmidt, President and Chief Executive Officer.

Derek Schmidt: And with that, I'll turn the call over to Derek Schmidt. Derek? Good morning, and thank you for joining us today.

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

Derek Schmidt: That said, we are deeply committed to continue growing and gaining share under challenging industry conditions, and we will remain aggressive with our strategies and investments to pursue new growth.

Mike Ressler: 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 different materially from those expressed in the forward-looking statements. Such risks and uncertainties include but are not limited to those that are described in our most recent annual report on Form 10K, as updated by our subsequent quarterly reports on Form 10Q and other SEC filings as applicable.

Derek Schmidt: I am pleased to share with you our fourth quarter in fiscal year 2024 results. We continued our positive momentum in the fourth quarter, delivering 4.7% sales growth over the prior year period near the top end of our guidance range. Despite continued weak demand conditions for our industry, our fourth quarter results represent our third consecutive quarter of mid to high single-digit year-to-year growth. I'm confident that our growth strategies are working. We are winning and gaining share, and we are working aggressively to accelerate our positive sales momentum going into fiscal year 2025.

lets steal: that said we are deeply committed to continue growing and gaining share under challenging industry conditions

Mike Ressler: These forward-looking statements speak only as the date of this conference call and should not be relied upon as predictions of future events.

lets steal: and we will remain aggressive with our strategies and investments to pursue a new growth

Derek Schmidt: Our strategic priorities for fiscal year 2025 remain largely unchanged. We have robust plans to continue growing through both our core markets and expansion into new markets. In our core markets, we remain focused on differentiating ourselves through value added innovation in new product development and delivering a superior customer experience. Our focus on expanded markets remains threefold. First, expanding and repositioning our brand portfolio to align with consumer needs of the future, especially younger consumers. Second, expanding beyond our core sales distribution and into new brick-and-mortar and e-commerce channels to position our brands wherever consumers desire to shop, both today and in the future.

Derek Schmidt: Our strategic priorities for fiscal year 2025 remain largely unchanged. We have robust plans to continue growing through both our core markets and expansion into new markets.

lets steal: our strategic priorities for fiscalyear two thousand and twenty-five remained largely unchanged

Mike Ressler: Additionally, we may refer to non-GAP measures, which are intended to supplement but not substitute for the most directly comparable GAP measures.

lets steal: we have robust plans to continue growing through both our core markets and expansion into new markets

Derek Schmidt: For fiscal year 2024 we grew our adjusted operating income to $18.3 million or a hundred and twenty six percent year-over-year improvement. The keys to our consistent profit improvement have been our sales growth, strong operational execution and efficiencies, robust cost savings, and disciplined product portfolio management. All of which have strong momentum and will continue to be catalysts for continued margin expansion in fiscal year 2025.

Mike Ressler: Press release, available on the website, contains a financial and other quantitative information to be discussed today, as well as the reconciliation of the GAP to non-GAP measures.

lets steal: in our core markets we remain focused on differentiating ourselves through value-added innovation and new product development and delivering a superior customer experience

Derek Schmidt: In our core markets, we remain focused on differentiating ourselves through value-added innovation and new product development and delivering a superior customer experience.

Mike Ressler: And with that, I'll turn the call over to Derek Schmidt.

Derek Schmidt: Our focus on expanded markets remains threefold. First, expanding and repositioning our brand portfolio to align with consumer needs of the future, especially younger consumers.

lets steal: our focus on expanded markets remains threefold

Derek Schmidt: Derek?

Derek Schmidt: Our strong execution over the past 12 months resulted in annual sales growth of 4.8%, which we feel is exceptional performance relative to the industry and the many industry participants who realize double-digit declines during the same period due to challenging industry dynamics. Our strong performance in fiscal year 2024 not only reflects our team's intense and aggressive focus on growing the business but also the attractive returns from continued investments in innovation, new product development, customer experience and marketing which are unlocking growth in our core markets and opening doors to new growth and expanded markets with long-term potential.

lets steal: first expanding in repositioning our brand portfolio to align with consumer needs of the future especially younger consumers

Derek Schmidt: Second, expanding beyond our core sales distribution and into new brick-and-mortar and e-commerce channels to position our brands wherever consumers desire to shop, both today and in the future.

lets steal: second expanding beyond our core sales distribution and into new brickand mortar and e-commerce channels to position our brands wherever consumers desire to shop both today and in the future

Derek Schmidt: Good morning, and thank you for joining us today.

Derek Schmidt: And third, expanding our penetration in the home beyond primary living areas.

Derek Schmidt: And third, expanding our penetration in the home beyond primary living areas. In fiscal 2024, we made strong progress in advancing all these strategic growth initiatives in where gaining momentum to further these pursuits in fiscal 2025.

lets steal: and third expanding our penetration in the home beyond primary living areas

Derek Schmidt: In Fiscal 2024, we made strong progress in advancing all these strategic growth initiatives, and we are gaining momentum to further these pursuits in Fiscal 2025.

lets steal: goisco two thousand and twenty-four we made strong progress in advancing all of these strategic growth initiatives and we are gaining momentum to further these pursuits in fiscal two thousand and twenty-five

Derek Schmidt: Simultaneously, we will continue to aggressively invest in three key growth capabilities that are foundational to achieving our long-term growth aspirations. First, we are investing more heavily in consumer insights to reveal both emerging and unmet consumer needs that we can uniquely position FlexSteel to address. Second, we are investing in innovation fed by consumer insights that both differentiates FlexSteel and can be protected through IP exclusivity or trademarks. Our innovation focused transcends many areas, including health and wellness, safety, ease of use, and superior consumer experience. The third area of key investment is marketing and brand awareness. While we will continue to excel at marketing to and through our trade partners, we are also building new abilities to engage consumers directly and strengthen awareness and trust in our brands.

lets steal: simultaneously we will continue to aggressively invest in three key growth capabilities that are foundational to achieving our long-term growth and aspirations

Derek Schmidt: At the same time we continue to improve our profitability. Adjusted operating margin was 5.6% in the fourth quarter up compared to 4% in the prior year quarter and represents our third consecutive quarter of sequential quarter over quarter growth in adjusted operating margin. For fiscal year 2024 we grew our adjusted operating income to $18.3 million or a hundred and 26% year-over-year improvement. The keys to our consistent profit improvement have been our sales growth, strong operational execution and efficiencies, robust cost savings and discipline product portfolio management, all of which have strong momentum and will continue to be catalyst for continued margin expansion in fiscal year 2025.

lets steal: first we are investing more heavily in consumer insights to reveal both emerging and unmet consumer needs that we can uniquely position flex steel to address

Derek Schmidt: Second, we are investing in innovation fed by Consumer Insights that both differentiates Flexsteel and can be protected through IP, exclusivity, or trademarks.

lets steal: second we are investing in innovation fed by consumer insights that both differentiates flex steel and can be protected through ip exclusivity or trademarks

Derek Schmidt: I'm confident that our growth strategies are working.

Derek Schmidt: Our innovation focus transcends many areas, including health and wellness.

lets steal: Our innovation focus transcends many areas, including health and wellness, safety, ease of use, and superior consumer experience.

Derek Schmidt: Safety, Ease of Use, and Superior Consumer Experience.

lets steal: the third area of key investment is marketing and brand awareness

lets steal: while we will continue to excel at marketing to and through our trade partners we are alsoful building new abilities to engage consumers directly and strengthen awareness and trust in our brands

Derek Schmidt: While we are intensely focused on growing the business and building long-term growth capabilities, the organization is also highly attentive to driving meaningful profit growth through operational excellence and disciplined portfolio management in fiscal 2025 and beyond. I am very proud of what our FlexSteel team accomplished this year and even more excited about the future potential of the business.

Derek Schmidt: I'm also very pleased with the progress we've made to improve working capital efficiency and strength in our balance sheet. Inventories were reduced by over $25 million in fiscal year 2024 while sustaining strong customer service levels. Coupled with higher profits, solid working capital management helped generate almost $32 million in operating cash flow and eliminated most of our bank debt. In the recent period where we've seen numerous industry bankruptcies and many industry participants continue to realize meaningful year-over-year declines in both sales and profits, flex deal is financially strong, growing sales, improving profitability, generating cash and aggressively investing for the future. Our customers, investors and other business partners should all have confidence that flex deal is well-positioned long-term for profitable, sustainable growth.

lets steal: while we are intensely focused on growing the business and building long-term growth capabilities

lets steal: the organization is also highly attentive to driving meaningful profit growth

lets steal: through operational excellence and disciplined portfolio management in fiscal two thousand and twenty-five and beyond

Derek Schmidt: I am very proud of what our Flexsteel team accomplished this year and even more excited about the future potential of the business. We have the right strategies, talent and culture to continue to strengthen our market leadership long term and to deliver exceptional results to our customers and investors, with that.

Derek Schmidt: I'm also very pleased with the progress we've made to improve working capital efficiency and strengthen our balance sheet. Inventories were reduced by over $25 million in fiscal year 2024 while sustaining strong customer service levels. Coupled with higher profits solid working capital management helped generate almost $32 million in operating cash flow and eliminated most of our bank debt.

lets steal: i am very proud of what our flexstillel team accomplished this year and even more excited about the future potential of the business

Derek Schmidt: In the recent period where we've seen numerous industry bankruptcies and many industry participants continue to realize meaningful year-over-year declines in both sales and profits, FlexSteel is financially strong, growing sales, improving profitability, generating cash, and aggressively investing for the future. Our customers, investors, and other business partners should all have confidence that FlexSteel is well positioned long-term for profitable sustainable growth.

Derek Schmidt: As we look forward to fiscal year 2025, weak consumer demand is expected to continue to be a major headwind for the industry in the near term. The impact of inflation, albeit slowing, and high interest rates continue to take a toll on consumers cost of living and their overall confidence and on the housing market which is an important underlying driver for furniture demand. Until U.S. consumers regain confidence in the economy and the outlook for these structural concerns, there's not an obvious catalyst to meaningfully move consumer demand for furniture in a more positive direction.

Derek Schmidt: We have the right strategies, talent, and culture to continue to strengthen our market leadership long-term and deliver exceptional results to our customers and investors.

Derek Schmidt: That said, we are deeply committed to continue growing and gaining share under challenging, industry conditions.

Derek Schmidt: And we will remain aggressive with our strategies and investments to pursue new growth.

lets steal: we have the right strategies talent and culture to continue to strengthen our market leadership long term and to deliver exceptional results to our customers and investors

Derek Schmidt: Our strategic priorities for fiscal year 2025 remain largely unchanged. We have robust plans to continue growing through both our core markets and expansion into new, markets.

Derek Schmidt: In our core markets, we remain focused on differentiating ourselves through value-added, innovation and new product development and delivering a superior customer experience.

Michael Ressler: With that, I will turn the call over to Mike, who will give you some additional details on the financial performance for the fourth quarter and the outlook for the first quarter in full year fiscal 2025. The fourth quarter net sales were $110.8 million, or growth of 4.7% compared to net sales of $105.8 million in the prior year quarter. As Derek mentioned, this marks our third consecutive quarter of sales growth compared to prior year periods and near the upper end of our guidance range of $107 to $112 million. Sales orders for the quarter were $108.5 million, or 17% above prior year quarter orders of $92.7 million.

Derek Schmidt: Our focus on expanded markets remains threefold. First, expanding and repositioning our brand portfolio to align with consumer needs of, the future, especially younger consumers.

Derek Schmidt: Second, expanding beyond our core sales distribution and into new brick and mortar and e-commerce, channels to position our brands wherever consumers desire to shop, both today and in the future.

Michael Ressler: I'll turn the call over to Mike, who will give you some additional details on the financial performance for the fourth quarter and the outlook for the first quarter and full year fiscal 2025. The fourth quarter, net sales were $110.8 million, for growth of 4.7% compared to net sales of $105.8 million in the prior year quarter.

Mike: with that i'll turn the call over to mike who will give you some additional details on the financial performance for the fourth quarter and the outlook for the first quarter in full year fiscal two thousand and twenty-five mike

Derek Schmidt: And third, expanding our penetration in the home beyond primary living areas.

Derek Schmidt: In fiscal 2024, we made strong progress in advancing all these strategic growth initiatives, and we are gaining momentum to further these pursuits in fiscal 2025.

Derek Schmidt: Simultaneously, we will continue to aggressively invest in three key growth capabilities that, are foundational to achieving our long-term growth aspirations. First, we are investing more heavily in consumer insights to reveal both emerging and unmet, consumer needs that we can uniquely position FlexSteel to address.

Mike: the fourth quarter net sales were one hundred and ten point eight million dollars or growth of four point seven percent compared to net sales of one hundred and five point eight million dollars in the prior year quarter

Derek Schmidt: As we look forward to fiscal year 2025, we consumer demand is expected to continue to be a major headwind for the industry in the near term. The impact of inflation, albeit slowing and high interest rates continue to take a toll on consumers' cost of living and their overall confidence and on the housing market, which is an important underlying driver for furniture demand. Until US consumers regain confidence in the economy and the outlook for these structural concerns, there's not an obvious catalyst to meaningfully move consumer demand for furniture in a more positive direction. That said, we are deeply committed to continuing growing and gaining share under challenging industry conditions, and we will remain aggressive with our strategies and investments to pursue new growth.

Michael Ressler: As Derek mentioned, this marks our third consecutive quarter of sales growth compared to prior year periods and near the upper end of our guidance range of $107 to $112 million. Sales orders for the quarter were $108.5 million, or 17% above prior year quarter orders of $92.7 million. Sales order backlog at the end of the period was $59.5 million, an increase of $9.8 million, or 20% above the prior year ending backlog of $49.7 million.

Mike: drek mentioned this march our third consecutive quarter of sales growth compared to prior year periods and near the upper end of our guidance range of one hundred and seven to one hundred andtwelve million dollars

Mike: sale orders for the quarter were one hundred and eight point five million dollars for seventeen percent above prior year quarter orders of ninety two point seven million dollars

Michael Ressler: Sales order backlog at the end of the period was $59.5 million and increase of $9.8 million, or 20% above the prior year ending backlog of $49.7 million. From a profit perspective, the company delivered gap operating income of $7.6 million, or 6.9% of sales in the fourth quarter. The gap operating margin exceeded our guidance range of 3.5% to 4.3%, primarily due to a one-time gain on the sale of our former manufacturing facility in Starkville, Mississippi, of $3.2 million. When adjusted for the impact of certain items, such as the gain on the sale of our Starkville property, as well as CEO transition costs and restructuring costs related to our previously announced double in Georgia plant closure, the company delivered adjusted operating income of $6.2 million or 5.6% of sales in the fourth quarter.

Mike: sales holdter backlog at the end of the period with fifty-nine point five million dollars an increase of nine point eight million dollars or twenty percent above the prior year ending backlog of forty nine point seven million dollars

Derek Schmidt: We are winning and gaining share, and we are working aggressively to accelerate our positive sales momentum going into fiscal year 2025. Our strong execution over the past 12 months resulted in annual sales growth of 4.8%, which we feel is exceptional performance relative to the industry and the many industry participants who realize double-digit declines during the same period due to challenging industry dynamics. Our strong performance in fiscal year 2024 not only reflects our team's intense and aggressive focus on growing the business but also the attractive returns from continued investments in innovation, new product development, customer experience and marketing which are unlocking growth in our core markets and opening doors to new growth and expanded markets with long-term potential.

Michael Ressler: From a profit perspective, the company delivered GAAP operating income of $7.6 million, or 6.9% of sales in the fourth quarter. The GAAP operating margin exceeded our guidance range of 3.5% to 4.3%, primarily due to a one-time gain on the sale of our former manufacturing facility in Starkville, Mississippi of $3.2 million. When adjusted for the impact of certain items, such as the gain on the sale of our Starkville property, as well as CEO transition costs and restructuring costs related to our previously announced Dublin, Georgia plant closure, the company delivered adjusted operating income of $6.2 million, or 5.6% of sales in the fourth quarter.

Mike: from a profit perspective the company delivered gaap operating income of seven point six million dollars or six point nine percent of sales in the fourth quarter the gaap operating margin exceed our guidance range of three point five percent to four point three percent

Mike: primarily due to a onetime gain on the sale of our former manufacturing facility and startbu mississippi of three point two million dollars

Mike: when adjusted for the impact of certain items such as the gain on the sale of our startfulll property as well as ceo transition costs

Derek Schmidt: Second, expanding beyond our core sales distribution and into new brick and mortar and e-commerce channels to position our brands wherever consumers desire to shop, both today and in the future. And third, expanding our penetration in the home beyond primary living areas. In fiscal 2024, we made strong progress in advancing all these strategic growth initiatives in where gaining momentum to further these pursuits in fiscal 2025.

Mike: and restructuring costs related to our previously announced dublin georgia plant closure the company delivered adjusted operating income of six point two million dollars or five point six percent of sales in the fourth quarter

Michael Ressler: The 5.6% adjusted operating margin was within our guidance range of 5.2 to 6.0%, and a 160 basis point increase from the prior year quarter.

Michael Ressler: The 5.6% adjusted operating margin was within our guidance range of 5.2% to 6.0% and a 160 basis point increase from the prior year quarter.

Mike: the five point six percent adjusted operating margin was within our guidance range a five point two to six point zero percent and a one hundred and sixty basis point increase from the prior year quarter

Michael Ressler: Moving to the balance sheet and statement of cash flows, the company ended the quarter with a cash balance of $4.8 million, working capital of $95 million, and a balance on our line of credit of $4.8 million. Increased profit and working capital efficiency allowed us to pay down our debt by another 66% or $9.4 million compared to the fiscal third quarter. Looking forward, sales guidance for the first quarter is between $100 and $105 million, reflecting five to ten percent growth compared to the prior year quarter. The first quarter is historically our slowest quarter of the year, as furniture purchases are often deferred by consumers in favor of travel and entertainment during the summer months.

Michael Ressler: Moving to the balance sheet and statement of cash flows. Company ended the quarter with a cash balance of $4.8 million, working capital of $95 million and a balance on our line of credit of $4.8 million.

Mike: moving to the balance sheet and statement of cash flows company into the quarter with a cash balance of four point eight million dollars working capital of ninety five million dollars and a balance on our lineof credit of four point eight million dollars

Michael Ressler: Increased profit and working capital efficiency allowed us to pay down our debt by another 66% or $9.4 million compared to the fiscal third quarter.

Mike: increased profit and working capital efficiency allowed us to pay down our debt by another sixty-six percent or nine point four million dollars compared to the fiscal third quarter

Derek Schmidt: Simultaneously, we will continue to aggressively invest in three key growth capabilities that are foundational to achieving our long-term growth aspirations. First, we are investing more heavily in consumer insights to reveal both emerging and unmet consumer needs that we can uniquely position FlexSteel to address. Second, we are investing in innovation fed by consumer insights that both differentiates FlexSteel and can be protected through IP exclusivity or trademarks. Our innovation focused transcends many areas including health and wellness, safety, ease of use, and superior consumer experience.

Michael Ressler: Looking forward, sales guidance for the first quarter is between $100 and $105 million, reflecting 5 to 10% growth compared to the prior year quarter.

Mike: looking forward sales guidance for the first quarter is between one hundred and one hundred and five million dollars reflecting five to ten percent growth compared to the prior year quarter

Mike: the first quarter is historically our slowest quarter of the year as furniture purchases are often deferred by consumers and favor of travel and entertainment during the summer months

Michael Ressler: With that said, sales growth will be driven primarily by unit volume growth and, to a lesser extent, pricing from recently implemented ocean freight surcharges in response to rising ocean freight rates. Regarding profitability, we expect growth margins between 21.5% and 22.0% in the first quarter. The slight improvement from fiscal 2024 fourth quarter growth margin of 21.3% driven by savings from our manufacturing network optimization initiative and favorable mix, partially offset by de-laverage of fixed costs on lower sales and higher ocean freight costs. We expect growth margin to grow modestly throughout the fiscal year, with sales growth leverage, cost savings initiatives, and new product profitability mix more than offsetting supply chain inflation.

Michael Ressler: With that said, sales growth will be driven primarily by unit volume growth and to a lesser extent pricing from recently implemented ocean freight surcharges in response to rising ocean freight rates.

Mike: with that said sales growth will be driven primarily by unit volume growth into a lesser extent pricing from recently implemented ocean freight sur charges and response to rising ocean freight rates

Michael Ressler: Regarding profitability, we expect gross margins between 21.5% and 22.0% in the first quarter. Flight Improvement from Fiscal 2024 4th Quarter Gross Margin of 21.3%, driven by savings from our Manufacturing Network Optimization Initiative and Favorable Mix, partially offset by deleverage of fixed costs on lower sails and higher ocean freight costs.

Mike: regarding profitability we expect gross margins between twenty-one point five and twenty -two point zero percent in the first quarter

Derek Schmidt: The third area of key investment is marketing and brand awareness. While we will continue to excel at marketing to and through our trade partners, we are also building new abilities to engage consumers directly and strengthen awareness and trust in our brands. While we are intensely focused on growing the business and building long-term growth capabilities, the organization is also highly attentive to driving meaningful profit growth through operational excellence and disciplined portfolio management in fiscal 2025 and beyond.

Mike: a slight improvement from fiscal two thousand and twenty four fourth quarter gross margin of twenty-one point three percent driven by savings from our manufacturing network optimization initiative in favorable mix

Mike: partially offset by deleverage of fixed costs on lower sales and higher ocean freight costs

Michael Ressler: We expect growth margin to grow modestly throughout the fiscal year with sales growth leverage, cost savings initiatives, and new product profitability mix more than offsetting supply chain inflation.

Mike: we expect girls margin to grow modestly throughout the fiscal year with sales growth leverage cost savings initiatives and new product profitability mix more than offsetting supply chain inflation

Michael Ressler: We will prudently manage S-GNA spending while investing in our growth initiatives and expect S-GNA costs between $16.5 and $17.0 million for the quarter. We are projecting operating income as a percentage of sales in the range of 5.0 to 6.0% for the first quarter, and expect operating income margins to improve throughout the year in parallel with forecasted growth margin improvement. The most significant drivers of variability in the first quarter guidance range are consumer demand, competitive pricing conditions, and ocean freight rates, all of which will be shaped by macroeconomic factors.

Michael Ressler: We will prudently manage SG&A spending while investing in our growth initiatives and expect SG&A costs between $16.5 and $17.0 million for the quarter. We are projecting operating income as a percentage of sales in the range of 5.0 to 6.0% for the first quarter, and expect operating income margins to improve throughout the year in parallel with forecasted growth margin improvement.

Derek Schmidt: I am very proud of what our FlexSteel team accomplished this year and even more excited about the future potential of the business. We have the right strategies, talent, and culture to continue to strengthen our market leadership long-term and deliver exceptional results to our customers and investors.

Mike: we will prudently manage sgna spending while investing in our growth initiatives and expect sgna costs between sixteen point five and seventeen point zero million dollars for the quarter

Mike: we are projecting operating income as a percentage of sales in the range of five point zero six point zero percent for the first quarter and expect operating income margins to improve throughout the year in parallel with forecasted gthross margin improvement

Michael Ressler: With that, I will turn the call over to Mike who will give you some additional details on the financial performance for the fourth quarter and the outlook for the first quarter in full year fiscal 2025. The fourth quarter net sales were $110.8 million or growth of 4.7% compared to net sales of $105.8 million in the prior year quarter. As Derek mentioned, this marks our third consecutive quarter of sales growth compared to prior year periods and near the upper end of our guidance range of $107 to $112 million.

Michael Ressler: The most significant drivers of variability in the first quarter guidance range are consumer demand, competitive pricing conditions, and ocean freight rates, all of which will be shaped by macroeconomic factors.

Mike: most significant drivers of variability in the first quarter guidance range our consumer demand competitive pricing conditions in ocean freight rates all of which will be shaped by macroeconomic factors

Michael Ressler: Regarding our cash flow outlook, our fiscal first quarter is normally a period with heavy outflows due to the timing of incentive compensation payouts and prepaid software and service agreements. With that, we expect pre-cash flow for the quarter in the range of $0 to $5 million and expect debt levels at the end of the quarter of between $0 and $7 million. Near-term priorities for cash remain reducing debt, resourcing new innovation, and funding capital expenditures. We will be opportunistic with share repurchases at modest spending levels if the stock price is trading at a significant discount to our view of intrinsic value.

Mike: regarding our cash flow outlook for fiscal first quarter is normally a period with heavy outflowsdue to the timing of incentive compensation payouts and prepaid softw and service agreements

Mike: with that we expect free cash flow for the quarter in the range of zero to five million dollars and expect that levels at the end of the quarter of between zero and seven million dollars

Michael Ressler: Sales orders for the quarter were $108.5 million or 17% above prior year quarter orders of $92.7 million. Sales order backlog at the end of the period was $59.5 million and increase of $9.8 million or 20% above the prior year ending backlog of $49.7 million. From a profit perspective, the company delivered gap operating income of $7.6 million or 6.9% of sales in the fourth quarter. The gap operating margin exceeded our guidance range of 3.5% to 4.3%, primarily due to a one-time gain on the sale of our former manufacturing facility in Starkville, Mississippi of $3.2 million.

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

Mike: near-term priorities for cash remain reducing debt resouring new innovation and funding capital expenditures

Michael Ressler: We will be opportunistic with share repurchases at modest spending levels if the stock price is trading at a significant discount to our view of intrinsic value.

Mike: we will be opportunistic with share repurchases at modest spending levels if the stock price is trading at a significant discount to our view of intrinsic value for the first quarter we expect capital expenditures between zero point five and one point zero million dollars

Michael Ressler: For the first quarter, we expect capital expenditures between $0.5 and $1.0 million. The effective tax rate for fiscal 2025 is expected to be in the range of 30 to 32%.

Michael Ressler: For the first quarter, we expect capital expenditures between $0.5 and $1.0 million.

Michael Ressler: The effective tax rate for fiscal 2025 is expected to be in the range of 30 to 32%.

Mike: the effective tax rate for fiscal two thousand and twenty-five is expected to be in the range of thirty to thirty-two percent

Michael Ressler: When adjusted for the impact of certain items, such as the gain on the sale of our Starkville property, as well as CEO transition costs and restructuring costs related to our previously announced double in Georgia plant closure, the company delivered adjusted operating income of $6.2 million or 5.6% of sales in the fourth quarter. The 5.6% adjusted operating margin was within our guidance range of 5.2 to 6.0% and a 160 basis point increase from the prior year quarter.

Derek Schmidt: Now, I'll turn the call back over to Derek to share his perspectives on our outlook. Thanks, Mike. While industry headwinds are expected to remain near-term, I am confident in our team's ability to deliver exceptional results in fiscal 2025 and believe that our long-term growth outlook remains promising. Our teams on wavering commitment to excellence, coupled with the foundational growth investments we've made and will continue to make, have positioned us to successfully drive attractive top-line growth and even stronger earnings in fiscal year 2025.

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

Derek Schmidt: Second, we are investing in innovation fed by consumer insights that both differentiates, FlexSteel and can be protected through IP, exclusivity, or trademarks.

Mike: now i'll turn the call back over to derek to share his perspectives on our outlook

Derek Schmidt: Thanks, Mike.

Derek Schmidt: Our innovation focus transcends many areas, including health and wellness, safety, ease, of use, and superior consumer experience.

Derek Schmidt: The third area of key investment is marketing and brand awareness. While we will continue to excel at marketing to and through our trade partners, we are, also building new abilities to engage consumers directly and strengthen awareness and trust in our brands.

Derek: there thanks mike while the industry headwinds are expected to remain near term i am confident in our team's ability to deliver exceptional results in fiscal two thousand and twenty five and believe that our long-term growth outlook remains promising

Derek: our teams on wavering commitment to excellence

Derek: upoupled with the foundational growth investments we've made and will continue to make have positioned us to successfully drive attractive top line growth and even stronger earnings in fiscal year two thousand and twenty-five

Derek Schmidt: In summary, we're excited about the potential of the business in the new fiscal year and the long-term growth opportunities for the company.

Derek Schmidt: While industry headwinds are expected to remain near-term, I am confident in our team's ability to deliver exceptional results in fiscal 2025 and believe that our long-term growth outlook remains promising. Our team's unwavering commitment to excellence, coupled with the foundational growth investments we've made, and will continue to make, have positioned us to successfully drive attractive top-line growth and even stronger earnings in fiscal year 2025. In summary, we're excited about the potential of the business in the new fiscal year and the long-term growth opportunities for the company.

Derek Schmidt: While we are intensely focused on growing the business and building long-term growth, capabilities, the organization is also highly attentive to driving meaningful profit growth through operational excellence and disciplined portfolio management in fiscal 2025 and beyond.

Derek Schmidt: I am very proud of what our FlexSteel team accomplished this year and even more excited, about the future potential of the business. We have the right strategies, talent, and culture to continue to strengthen our market, leadership long-term and to deliver exceptional results to our customers and investors.

Derek: in summary we're excited about the potential of the business in the new fiscal year and the long-term growth opportunities for the company

Derek Schmidt: With that, we will open the call to your questions.

Derek Schmidt: With that, I will turn the call over to Mike, who will give you some additional details

Michael Ressler: Moving to the balance sheet and statement of cash flows, company ended the quarter with a cash balance of $4.8 million, working capital of $95 million and a balance on our line of credit of $4.8 million. Increased profit and working capital efficiency allowed us to pay down our debt by another 66% or $9.4 million compared to the fiscal third quarter. Looking forward, sales guidance for the first quarter is between $100 and $105 million, reflecting five to 10 percent growth compared to the prior year quarter.

Operator: Operator?

Mike Ressler: on the financial performance for the fourth quarter and the outlook for the first quarter and full year fiscal 2025.

Mike Ressler: Mike?

Mike Ressler: The fourth quarter, net sales were $110.8 million, or growth of 4.7% compared to net, sales of $105.8 million in the prior year quarter. As Derek mentioned, this marks our third consecutive quarter of sales growth compared to prior, year periods, and near the upper end of our guidance range of $107 to $112 million.

Operator: We will now begin the question-and-answer session to ask a question. You may press star them one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If your question has been answered and you would like to withdraw your question, please press star, and then two.

Speaker Change: with that we will open the call to your questions operator

Operator: We will now begin the question.., session.

Mike Ressler: Sales orders for the quarter were $108.5 million, or 17% above prior year quarter orders, of $92.7 million. Sales order backlog at the end of the period was $59.5 million, an increase of $9.8 million, or 20% above the prior year ending backlog of $49.7 million.

Mike Ressler: From a profit perspective, the company delivered GAAP operating income of $7.6 million, or, 6.9% of sales in the fourth quarter. The GAAP operating margin exceeded our guidance range of 3.5% to 4.3%, primarily due to a, one-time gain on the sale of our former manufacturing facility in Starkville, Mississippi of $3.2 million. When adjusted for the impact of certain items, such as the gain on the sale of our Starkville, property, as well as CEO transition costs and restructuring costs related to our previously announced Dublin, Georgia plant closure, the company delivered adjusted operating income of $6.2 million, or 5.6% of sales in the fourth quarter.

Operator: To ask a question, you may press star, then 1.

Mike Ressler: The 5.6% adjusted operating margin was within our guidance range of 5.2% to 6.0%, and a, 160 basis point increase from the prior year quarter.

Mike Ressler: The effective tax rate for fiscal 2025 is expected to be in the range of 30% to 32%.

Mike Ressler: Moving to the balance sheet and statement of cash flows, the company ended the quarter, with a cash balance of $4.8 million, working capital of $95 million, and a balance on our line of credit of $4.8 million. Increased profit and working capital efficiency allowed us to pay down our debt by another, 66%, or $9.4 million, compared to the fiscal third quarter.

Mike Ressler: Looking forward, sales guidance for the first quarter is between $100 and $105 million, reflecting 5% to 10% growth compared to the prior year quarter.

Speaker Change: will now begin the question and answer session to ask a question you may press star them one on your touch one phone if you're using a speaker phone please pick up your handsset before pressing the keys

Mike Ressler: The first quarter is historically our slowest quarter of the year, as furniture purchases, are often deferred by consumers in favor of travel and entertainment during the summer months. With that said, sales growth will be driven primarily by unit volume growth, and to a, lesser extent, pricing from recently implemented ocean freight surcharges in response to rising ocean freight rates.

Mike Ressler: Regarding profitability, we expect gross margins between 21.5% and 22.0% in the first quarter. A slight improvement from fiscal 2024, fourth quarter gross margin of 21.3%, driven by savings, from our manufacturing network optimization initiative and favorable mix, partially offset by deleverage of fixed costs on lower sales and higher ocean freight costs.

Operator: If you are using a speakerphone, please pick up your handset before pressing the button, if your question.

Mike Ressler: We expect growth margin to grow modestly throughout the fiscal year with sales growth leverage, cost savings initiatives, and new product profitability mix more than offsetting supply chain inflation.

Mike Ressler: We will prudently manage SG&A spending while investing in our growth initiatives and expect, SG&A costs between $16.5 and $17.0 million for the quarter.

Mike Ressler: We are projecting operating income as a percentage of sales in the range of 5.0 to 6.0% for the, first quarter and expect operating income margins to improve throughout the year in parallel with forecasted growth margin improvement.

Mike Ressler: The most significant drivers of variability in the first quarter guidance range are consumer, demand, competitive pricing conditions, and ocean freight rates, all of which will be shaped by macroeconomic factors.

Mike Ressler: Regarding our cash flow outlook, our fiscal first quarter is normally a period with heavy, outflows due to the timing of incentive compensation payouts and prepaid software and service agreements. With that, we expect pre-cash flow for the quarter in the range of $0 to $5 million and, expect debt levels at the end of the quarter of between $0 to $7 million.

Mike Ressler: Year-term priorities for cash remain reducing debt, resourcing new innovation, and funding, capital expenditures. We will be opportunistic with share repurchases at modest spending levels if the stock price, is trading at a significant discount to our view of intrinsic value.

Operator: Answered.

Mike Ressler: For the first quarter, we expect capital expenditures between $0.5 and $1.0 million.

Operator: You would like to withdraw your question, please press star and then.

Speaker Change: if your question has been an answered and you would like to withdraw your question please press star and then to or first question comes from anthony

Anthony Levadinsky: Our first question comes from Anthony Levadinsky with Sidodian Company. Please go ahead. Good morning, gentlemen. Thank you. Tough environment, but for sure. So yeah, good morning.

Operator: Our first question comes from Anthony.

Anthony Lebiedzinski: Lebedzinski with Synodian Company.

Anthony Lebiedzinski: Please go ahead.

Mike Ressler: Now I will turn the call back over to Derek to share his perspectives on our outlook.

Speaker Change: lein zinski with cedodian company please go ahead

Anthony Lebiedzinski: Good morning, gentlemen, and thank you for taking the questions and great performance in a tough environment, for sure.

Anthony Leinzinski: goodmorningyou gentlemen and thank you for taking any questions and great performance and a tough environment for sure

Michael Ressler: The first quarter is historically our slowest quarter of the year as furniture purchases are often deferred by consumers in favor of travel and entertainment during the summer months. With that said, sales growth will be driven primarily by unit volume growth and to a lesser extent pricing from recently implemented ocean freight surcharges in response to rising ocean freight rates. Regarding profitability, we expect growth margins between 21.5 and 22.0% in the first quarter.

Anthony Lebiedzinski: So I guess, you know, so yeah, good morning.

Derek Schmidt: Derek?

Anthony Lebiedzinski: So first, just wanted to see if you could, parse out the growth from the core business versus new channels of distribution and maybe you could just start with that and I had a couple of other questions as well.

Derek Schmidt: Thanks, Mike.

Derek Schmidt: So first, just wanted to see if you could pass out the growth from the core business versus each house of distribution, and maybe you could just start with that, and I had a couple of other questions as well. Yeah, I think what's encouraging Anthony is that our overall growth was driven both by gains in our core business as well as our strategic growth initiatives. Those being the market expansion initiatives that I mentioned earlier. So I think again, we're executing well. The investments we're making, certainly around new product development and customer experience, I think are the key drivers in our core business.

Speaker Change: so i guess so had gooddemmoring so first just wanted to see if you can

Anthony Leinzinski: passed out the growth from the core business versus new challnels of distribution and maybe you could just start with that and i had a couple of other questions as well

Derek Schmidt: Yeah, I think...

Derek Schmidt: While industry headwinds are expected to remain near-term, I am confident in our team's ability, to deliver exceptional results in fiscal 2025 and believe that our long-term growth outlook remains promising. Our team's unwavering commitment to excellence, coupled with the foundational growth investments, we have made and will continue to make, have positioned us to successfully drive attractive top-line growth and even stronger earnings in fiscal year 2025. In summary, we are excited about the potential of the business in the new fiscal year and, the long-term growth opportunities for the company.

Derek Schmidt: What's encouraging, Anthony, is that our overall growth was driven both by gains in our core business as well as our strategic growth initiatives, those being, you know, the market expansion initiatives that I mentioned earlier.

Derek Schmidt: With that, we will open the call to your questions.

Speaker Change: i think um

Operator: Operator?

Speaker Change: so what what's encouraging anthony is that our overall growth was driven both by gains in our core business

Michael Ressler: The slight improvement from fiscal 2024 fourth quarter growth margin of 21.3% driven by savings from our manufacturing network optimization initiative and favorable mix partially offset by de-laverage of fixed costs on lower sales and higher ocean freight costs. We expect growth margin to grow modestly throughout the fiscal year with sales growth leverage, cost savings initiatives and new product profitability mix, more than offsetting supply chain inflation. We will prudently manage S-GNA spending while investing in our growth initiatives and expect S-GNA costs between $16.5 and $17.0 million for the quarter.

Anthony Leinzinski: as well as our strategic growth initiatives those being the market expansion initiatives that i mentioned earlier so i think again we're executing well the investments we're making

Derek Schmidt: So, I think, again, we're executing well.

Operator: We will now begin the question and answer session.

Operator: To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Derek Schmidt: The investments we're making certainly around new product development and customer experience, I think, are the key drivers in our core business.

Anthony Leinzinski: certainly around new product development and customer experience i think are the key drivers in our core business

Derek Schmidt: And then you're familiar with the initiatives that we have to address expanded markets. Things like Z-Cliner and Flex and Charisma in our big box entries. So again, what I'm really encouraged by is the fact that on both of those fronts, we're making good headway and we're growing both aspects of the business.

Derek Schmidt: And then you're familiar with, you know, the initiatives that we have to address expanded markets, you know, things like ZKleiner and Flex and Charisma and our big box entries.

Speaker Change: and then you're familiar with the initiatives that we have

Speaker Change: to address expanded markets things like the cliner and flats and charisma in our big box centriies so again whatwhen ' i'm reallyly encouraged by as the fact that on both of those fronts will making good headway and we're growing both aspects of the business

Derek Schmidt: So, again, what I'm really encouraged by is the fact that on both of those fronts, we're making good headway and we're growing both aspects of the business.

Derek Schmidt: Okay, so great to hear that there's balanced growth from this strategy here. And I guess you're just looking at the quarter. So the sales trends to retail stores versus sales to e-commerce retailers. There was quite a bit of a divergence there in a quarter. How do you see that shaping up here? First quarter and through the balance of fiscal 25? I think on the e-commerce front and being the industry expert, Anthony, this won't come as a surprise. But on the e-commerce front, the whole industry has been sluggish. But e-commerce has been especially challenging. You know, where we largely compete on that front is through our ready-to-assemble home styles business.

Anthony Lebiedzinski: Okay, so great to hear that there's balanced growth from this strategy here.

Michael Ressler: We are projecting operating income as a percentage of sales in the range of 5.0 to 6.0% for the first quarter, and expect operating income margins to improve throughout the year in parallel with forecasted growth margin improvement. The most significant drivers of variability in the first quarter guidance range are consumer demand, competitive pricing conditions, and ocean freight rates, all of which will be shaped by macroeconomic factors. Regarding our cash flow outlook, our fiscal first quarter is normally a period with heavy outflows due to the timing of incentive compensation payouts and prepaid software and service agreements.

Speaker Change: okay so great to hear that there's balanced growth for

Anthony Lebiedzinski: So, and I guess, you know, just looking at the quarter, so, you know, the sales trends to retail stores, versus sales to e-commerce retailers, you know, there was quite a bit of a divergence there in a quarter.

Speaker Change: from this strategy here so and i guess i'll just just looking at the quarter so the sales trends to retail stores versus sales to

Derek Schmidt: How do you see that shaping up here, you know, first quarter and through the balance of fiscal 25?

Speaker Change: e-commerce retailers there're quite a bit of a di vergence there in a quarter how do you see that shaping up here first quarter and through the balance of fiscal twenty-five

Derek Schmidt: I think on the e-commerce front, and being the industry expert, Anthony, this won't come as a surprise, but on the e-commerce front, the whole industry has been sluggish, but e-commerce has been especially challenging.

Speaker Change: i think on the e-commerce front

Anthony Leinzinski: and being the industry expert anthonyis won't come to the surprise but on the e-commerce front it's

Derek Schmidt: Where we largely compete on that front is through our ready-to- assemble homestyles business at lower price points, and that part of the market, I think, is, significantly more challenging than the rest of the market.

Michael Ressler: With that, we expect pre-cash flow for the quarter in the range of $0 to $5 million and expect debt levels at the end of the quarter of between $0 and $7 million. Near-term priorities for cash remain reducing debt, resourcing new innovation, and funding capital expenditures. We will be opportunistic with share repurchases at modest spending levels if the stock price is trading at a significant discount to our view of intrinsic value. For the first quarter, we expect capital expenditures between $0.5 and $1.0 million. The effective tax rate for fiscal 2025 is expected to be in the range of 30 to 32%.

Anthony Leinzinski: the only industry has been been sluggish but e-commerce has been especially challenging you know where we largely compete on that front is through our ready to assembled homesoundes business

Derek Schmidt: At lower price points, and that part of the market, I think, is significantly more challenging than the rest of the market. I think until we see some of those macroeconomic factors like inflation, high interest rates, and housing, actually start to stabilize. I think that part of the market is going to continue to be pretty choppy. Again, on a positive note, we're doing extremely well on the retail front. And I think that's going to continue to be a very positive catalyst for fiscal year 25 for overall growth.

Anthony Leinzinski: at at lower price points and that part of the market i think is is

Derek Schmidt: I think until we see some of those macroeconomic factors like inflation, high interest rates, housing, actually start to stabilize, I think that part of the market is going to continue to be pretty choppy.

Anthony Leinzinski: significantly more challenging than the rest of the market

Anthony Leinzinski: i think until we see some of those mactroeconomic factors like inflation high interest rates housing actually start to stabilize i think that part of the market is going to continue to be pretty choppy

Derek Schmidt: Again, on a positive note, we're doing extremely well on the retail front, and I think that's going to continue to be a very positive catalyst for fiscal year 25 for overall growth.

Anthony Leinzinski: again on a positive note we're doing extremely well on the retail front i think that's going to continue to be a very positive catalyst for fiscal year twenty-five for our overall growth

Anthony Lebiedzinski: Gotcha.

Michael Ressler: And then my last question here, so as far as from a cost perspective. So I know you mentioned the ocean freight costs, and you put in a freight store charge there. Other than that, I mean, is there anything else to call off from a cost perspective that we should think about?

Derek Schmidt: In the recent period where we've seen numerous industry bankruptcies and many industry participants continue to realize meaningful year-over-year declines in both sales and profits, flex deal is financially strong, growing sales, improving profitability, generating cash and aggressively investing for the future. Our customers, investors and other business partners should all have confidence that flex deal is well-positioned long-term for profitable, sustainable growth.

Speaker Change: yesshould think any in my last question here so as far as if from a cost perspective so i know you mentioned ocean breateight costs and you put in a freight sort charge there but other than that i mean is there anything else to call off from from a cost perspective that we should think about

Michael Ressler: Anthony, I'll take that. So that's really kind of the one area in terms of kind of supply chain inflation that we're feeling now. You know, we've implemented surcharges to mitigate that. And so far, we haven't seen a substantial impact to the volume, but we'll continue to monitor that situation quite closely. In terms of other areas of cost within the supply chain, we have wages within our distribution centers. There's a little bit of pressure there, as well as within our Mexico operations. You know, we would anticipate and kind of in the second half of the year, kind of the normal cost adjustment for the labor force down there.

Anthony Lebiedzinski: And then my last question here.

Anthony Lebiedzinski: So as far as from a cost perspective, so I know you mentioned the ocean freight costs, and you put in a freight store charge there.

Anthony Leinzinski: anthony i'll take that so that's really kind of the one area in terms of kind of supply chain inflation that we're feeling now you know we've you know implemented sur charges to mitigate that

Anthony Lebiedzinski: But other than that, I mean, is there anything else to call off from a cost perspective that we should think about?

Speaker Change: and so far we haven't seen a substantial impact to the volume but we'll continue to monitor that situation quite closely

Derek Schmidt: Until US consumers regain confidence in the economy and the outlook for these structural concerns, there's not an obvious catalyst to meaningfully move consumer demand for furniture in a more positive direction.

Derek Schmidt: In summary, we're excited about the potential of the business in the new fiscal year and the long-term growth opportunities for the company. With that, we will open the call to your questions.

Operator: Operator?

Speaker Change: in terms of other areas of costs within the supply chain you know we have

Speaker Change: um

Speaker Change: we have wages within our distribution centers there's a little bit of pressure there as well as you know within our mexico operations you know we would anticipate and kind of in the secondhalf of the year kind of the normal cost adjustment for the liabor force down there but other than that we haven't been seening too much on theinflation side

Michael Ressler: But other than that, we haven't been seeing too much on the inflation side.

Anthony Levadinsky: Gotcha.

Anthony Levadinsky: All right.

Anthony Levadinsky: Well, thank you very much for the best of luck.

Anthony Levadinsky: Our first question comes from Anthony Levadinsky with Sidodian Company. Please go ahead. Good morning, gentlemen. Thank you tough environment, but for sure. So yeah, good morning.

Derek Schmidt: All right.

Michael Ressler: Anthony, I'll take that.

Derek Schmidt: Thanks, Anthony.

Michael Ressler: So that's really kind of the one area in terms of kind of supply chain inflation that we're feeling now.

Speaker Change: all well thank you very much best look

Derek Schmidt: Thanks.

Michael Ressler: You know, we've, you know, implemented surcharges to mitigate that.

Operator: If your question has been answered and you would like to withdraw your question, please, press star and then 2.

Operator: Again, if you have a question, please press star and then one.

Speaker Change: all righti thank fanphony thanks

Speaker Change: again if you have a question please press star and then one

Speaker Change: okay

Derek Schmidt: This concludes our question in the answer session.

Operator: Our first question comes from Anthony Levodzinski with Sudotian Company.

Anthony Levodzinski: Please go ahead.

Anthony Levodzinski: Good morning, gentlemen, and thank you for taking the questions and great performance, in a tough environment, for sure.

Derek Schmidt: I would like to turn the conference back over to Derek Schmidt for any closing remarks.

Anthony Levodzinski: So, I guess, so yeah, good morning.

Derek Schmidt: I would like to turn the conference back over to Derek Schmidt for any closing remarks.

Anthony Levodzinski: So first, just wanted to see if you could parse out, the growth from the core business versus new channels of distribution, and maybe you could just start with that, and I had a couple of other questions as well.

Speaker Change: this concludes our question in the answer session i would like to turn the conference back over to derek smiit for any closing remarks

Derek Schmidt: Yeah, I think what's encouraging, Anthony, is that our overall growth was driven both by gains in our core business, as well as our strategic growth initiatives, those being the market expansion initiatives that I mentioned earlier.

Derek Schmidt: So I think, again, we're executing well.

Derek Schmidt: So first, just wanted to see if you could pass out the growth from the core business versus each house of distribution, and maybe you could just start with that and I had a couple of other questions as well. Yeah, I think what's encouraging Anthony is that our overall growth was driven both by gains in our core business as well as our strategic growth initiatives. Those being the market expansion initiatives that I mentioned earlier.

Derek Schmidt: The investments we're making, certainly around new product development and customer experience, I think are the key drivers in our core business.

Derek Schmidt: And then you're familiar with the initiatives, that we have to address expanded markets, things like Z-Kleiner and Flex and Charisma in our big box entries.

Derek Schmidt: In closing, I first want to acknowledge the passing of Budd Bugatch this week. As many of you know, Budd was a longtime furniture and bedding industry equity analyst, personal friend and admired colleague and a follower of Flexsteel and a regular participant on our earnings call.

Derek Schmidt: In closing, I first want to acknowledge the passing of Budd Bugatch this week. As many of you know, Bud was a long time furniture and betting industry equity analyst, personal friend, and my admired colleague and a follower of Flexsteel in a regular parts spin on our earnings call. But we'll be deeply missed, and may he rest in peace.

Derek Schmidt: So again, what I'm really encouraged by, is the fact that on both of those fronts, we're making good headway and we're growing both aspects of the business.

Michael Ressler: And, you know, so far, we haven't seen a substantial impact, you know, to the volume, but we'll continue to monitor that situation quite closely.

Anthony Levodzinski: Okay, so great to hear that there's balanced growth, from this strategy here.

Michael Ressler: And in terms of other areas of cost within the supply chain, you know, we have, we have wages within our distribution centers, there's a little bit of pressure there as well as, you know, within our Mexico operations.

Anthony Levodzinski: And I guess, just looking at the quarter or so, the sales trends to retail stores versus sales to e-commerce retailers, there was quite a bit of a divergence there in a quarter.

Derek Schmidt: How do you see that shaping up here, first quarter and through the balance of fiscal 25?

Derek Schmidt: Yeah, I think on the e-commerce front, and being the industry expert, Anthony, this won't come as a surprise, but on the e-commerce front, the whole industry has been sluggish, but e-commerce has been especially challenging.

Derek Schmidt: Where we largely compete on that front, is through our ready to assemble homestyles business at lower price points.

Derek Smiit: in closing my first one to acknowledge the passing a bud buouage this wee

Derek Schmidt: And that part of the market, I think, is significantly more challenging than the rest of the market.

Derek Schmidt: I think until we see some of those macroeconomic factors, like inflation, high interest rates, housing actually start to stabilize, I think that part of the market, is gonna continue to be pretty choppy.

Derek Schmidt: Again, on a positive note, we're doing extremely well on the retail front.

Derek Schmidt: I think that's gonna continue to be, a very positive catalyst for fiscal year 25 for overall growth.

Anthony Levodzinski: Gotcha, okay.

Derek Smiit: as many you know butud was a longtime furniture and betting industry equity analyst personal friend in admired colleague get a fall where flex steal in a regular parts of spent on our earnings call butud will be deeply missed and may rest in pieacece

Anthony Levodzinski: And then my last question here.

Anthony Levodzinski: So as far as from a cost perspective, so I know you mentioned the ocean freight costs and you put in a freight store charge there, but other than that, I mean, is there anything else to call off from a cost perspective that we should think about?

Mike Ressler: Anthony, I'll take that.

Derek Schmidt: That said, we are deeply committed to continuing growing and gaining share under challenging industry conditions, and we will remain aggressive with our strategies and investments to pursue new growth.

Derek Schmidt: So I think again, we're executing well, the investments we're making, certainly around new product development and customer experience, I think are the key drivers in our core business. And then you're familiar with the initiatives that we have to address expanded markets. Things like Z-Cliner and Flex and Charisma in our big box entries. So again, what I'm really encouraged by is the fact that on both of those fronts, we're making good headway and we're growing both aspects of the business.

Mike Ressler: So that's really kind of the one area, in terms of kind of supply chain inflation that we're feeling now.

Mike Ressler: You know, we've implemented certain measures, and implemented surcharges to mitigate that.

Mike Ressler: And, you know, so far we haven't seen a substantial impact, you know, to the volume, but we'll continue to monitor that situation quite closely.

Mike Ressler: In terms of other areas of costs within the supply chain, you know, we have wages within our distribution centers.

Derek Schmidt: Budd will be deeply missed and may he rest in peace.

Mike Ressler: There's a little bit of pressure there, as well as, you know, within our Mexico operations.

Mike Ressler: You know, we would anticipate, in kind of in the second half of the year, kind of the normal cost adjustment for the labor force down there.

Mike Ressler: But other than that, we haven't been seeing too much on the inflation side.

Anthony Levodzinski: All right.

Derek Schmidt: I also want to thank all of our Flexsteel employees for their dedication and outstanding performance during the fiscal year.

Derek Schmidt: I also want to thank all of our Flexsteel employees for their dedication and outstanding performance during the fiscal year. I'm also thankful for all of you for participating in today's call. Please contact us if you have any additional questions, and we look forward to updating you on our next call. Thank you.

Michael Ressler: You know, we would anticipate in kind of in the second half of the year, kind of the normal cost adjustment for the labor force down there.

Anthony Levodzinski: Well, thank you very much and best of luck.

Michael Ressler: But other than that, we haven't been seeing too much on the inflation side.

Anthony Levodzinski: All right.

Derek Schmidt: Thanks, Anthony.

Derek Schmidt: Thanks.

Operator: Again, if you have a question, please press star and then one.

Derek Schmidt: Our strategic priorities for fiscal year 2025 remain largely unchanged. We have robust plans to continue growing through both our core markets and expansion into new markets.

Derek Smiit: i also want to thank all of our flex employees for their dedication and outstanding performance during the fiscal year

Operator: This concludes our question and answer session.

Derek Schmidt: I'm also thankful for all of you for participating in today's call.

Anthony Lebiedzinski: Gotcha.

Anthony Lebiedzinski: All right.

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

Derek Schmidt: In our core markets, we remain focused on differentiating ourselves through value added innovation in new product development and delivering a superior customer experience.

Anthony Lebiedzinski: All right, thanks, Anthony.

Anthony Lebiedzinski: Thanks.

Derek Schmidt: Please contact us if you have any additional questions and we look forward to updating you on our next call.

Derek Schmidt: Please contact us if you have any additional questions, and we look forward to updating you on our next call.

Operator: Again, if you have a question, please press star and then 1.

Derek Smiit: i'm also thankful for all of you for participating in today's call please contact us if you have any additional questions and we look forward to updating you on our next call thank you

Operator: This concludes our question and answer session.

Derek Schmidt: I would like to turn the conference back over to Derek Schmidt for any closing remarks.

Derek Schmidt: Budd will be deeply missed and may he rest in peace.

Derek Schmidt: I also want to thank all of our Flexsteel employees for their dedication and outstanding performance during the fiscal year.

Derek Schmidt: Thank you.

Derek Schmidt: I'm also thankful for all of you for participating in today's call.

Operator: The conference is now concluded.

Operator: Thank you for attending today's presentation.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect.

Derek Schmidt: Our focus on expanded markets remains threefold. First, expanding and repositioning our brand portfolio to align with consumer needs of the future, especially younger consumers.

Operator: You may now disconnect.

Speaker Change: the conference has now concluded thank you for attending today's presentation you may now disconnect

Derek Schmidt: And third, expanding our penetration in the home beyond primary living areas.

Derek Schmidt: In fiscal 2024, we made strong progress in advancing all these strategic growth initiatives in where gaining momentum to further these pursuits in fiscal 2025.

Derek Schmidt: Second, we are investing in innovation fed by consumer insights that both differentiates FlexSteel and can be protected through IP exclusivity or trademarks. Our innovation focused transcends many areas including health and wellness, safety, ease of use, and superior consumer experience.

Derek Schmidt: But on the e-commerce front, the whole industry has been sluggish. But e-commerce has been especially challenging. You know, where we largely compete on that front is through our ready to assemble home styles business. At lower price points and that part of the market, I think, is significantly more challenging than the rest of the market. I think until we see some of those macroeconomic factors like inflation, high interest rates, housing, actually start to stabilize.

Derek Schmidt: I think that part of the market is going to continue to be pretty choppy. Again, on a positive note, we're doing extremely well on the retail front. And I think that's going to continue to be a very positive catalyst for fiscal year 25 for overall growth.

Michael Ressler: And then my last question here, so as far as from a cost perspective. So I know you mentioned the ocean freight costs and you put in a freight store charge there. Other than that, I mean, is there anything else to call off from a cost perspective that we should think about? Anthony, I'll take that. So that's really kind of the one area in terms of kind of supply chain inflation that we're feeling now.

Michael Ressler: You know, we've implemented surcharges to mitigate that. And so far, we haven't seen a substantial impact to the volume, but we'll continue to monitor that situation quite closely. In terms of other areas of cost within the supply chain, we have wages within our distribution centers. There's a little bit of pressure there as well as within our Mexico operations. You know, we would anticipate and kind of in the second half of the year, kind of the normal cost adjustment for the labor force down there. But other than that, we haven't been seeing too much on the inflation side. Gotcha. All right.

Anthony Levadinsky: Well, thank you very much for the best of luck. All right. Thanks, Anthony. Thanks. Again, if you have a question, please press star and then one.

Derek Schmidt: This concludes our question in the answer session. I would like to turn the conference back over to Derek Schmidt for any closing remarks.

Derek Schmidt: In closing, I first want to acknowledge the passing of Budd Bugatch this week. As many of you know, Bud was a long time furniture and betting industry equity analyst, personal friend and my admired colleague and a follower of Flexsteel in a regular parts spin on our earnings call. But we'll be deeply missed and may he rest in peace.

Derek Schmidt: I also want to thank all of our Flexsteel employees for their dedication and outstanding performance during the fiscal year. I'm also thankful for all of you for participating in today's call. Please contact us if you have any additional questions and we look forward to updating you on our next call. Thank you.

Mike Ressler: With that, I will turn the call over to Mike who will give you some additional details on the financial performance for the fourth quarter and the outlook for the first quarter in full year fiscal 2025. The fourth quarter net sales were $110.8 million or growth of 4.7% compared to net sales of $105.8 million in the prior year quarter.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Mike Ressler: As Derek mentioned, this marks our third consecutive quarter of sales growth compared to prior year periods and near the upper end of our guidance range of $107 to $112 million. Sales orders for the quarter were $108.5 million or 17% above prior year quarter orders of $92.7 million. Sales order backlog at the end of the period was $59.5 million and increase of $9.8 million or 20% above the prior year ending backlog of $49.7 million.

Mike Ressler: From a profit perspective, the company delivered gap operating income of $7.6 million or 6.9% of sales in the fourth quarter. The gap operating margin exceeded our guidance range of 3.5% to 4.3%, primarily due to a one-time gain on the sale of our former manufacturing facility in Starkville, Mississippi of $3.2 million. When adjusted for the impact of certain items, such as the gain on the sale of our Starkville property, as well as CEO transition costs and restructuring costs related to our previously announced double in Georgia plant closure, the company delivered adjusted operating income of $6.2 million or 5.6% of sales in the fourth quarter.

Mike Ressler: The 5.6% adjusted operating margin was within our guidance range of 5.2 to 6.0% and a 160 basis point increase from the prior year quarter.

Mike Ressler: Moving to the balance sheet and statement of cash flows, company ended the quarter with a cash balance of $4.8 million, working capital of $95 million and a balance on our line of credit of $4.8 million. Increased profit and working capital efficiency allowed us to pay down our debt by another 66% or $9.4 million compared to the fiscal third quarter.

Mike Ressler: Looking forward, sales guidance for the first quarter is between $100 and $105 million, reflecting five to 10 percent growth compared to the prior year quarter.

Mike Ressler: The first quarter is historically our slowest quarter of the year as furniture purchases are often deferred by consumers in favor of travel and entertainment during the summer months.

Mike Ressler: With that said, sales growth will be driven primarily by unit volume growth and to a lesser extent pricing from recently implemented ocean freight surcharges in response to rising ocean freight rates.

Mike Ressler: Regarding profitability, we expect growth margins between 21.5 and 22.0% in the first quarter. The slight improvement from fiscal 2024 fourth quarter growth margin of 21.3% driven by savings from our manufacturing network optimization initiative and favorable mix partially offset by de-laverage of fixed costs on lower sales and higher ocean freight costs.

Mike Ressler: We expect growth margin to grow modestly throughout the fiscal year with sales growth leverage, cost savings initiatives and new product profitability mix, more than offsetting supply chain inflation.

Mike Ressler: We will prudently manage S-GNA spending while investing in our growth initiatives and expect S-GNA costs between $16.5 and $17.0 million for the quarter.

Mike Ressler: We are projecting operating income as a percentage of sales in the range of 5.0 to 6.0% for the first quarter, and expect operating income margins to improve throughout the year in parallel with forecasted growth margin improvement.

Mike Ressler: The most significant drivers of variability in the first quarter guidance range are consumer demand, competitive pricing conditions, and ocean freight rates, all of which will be shaped by macroeconomic factors.

Mike Ressler: Regarding our cash flow outlook, our fiscal first quarter is normally a period with heavy outflows due to the timing of incentive compensation payouts and prepaid software and service agreements. With that, we expect pre-cash flow for the quarter in the range of $0 to $5 million and expect debt levels at the end of the quarter of between $0 and $7 million.

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

Mike Ressler: We will be opportunistic with share repurchases at modest spending levels if the stock price is trading at a significant discount to our view of intrinsic value.

Mike Ressler: For the first quarter, we expect capital expenditures between $0.5 and $1.0 million.

Mike Ressler: The effective tax rate for fiscal 2025 is expected to be in the range of 30 to 32%.

Derek Schmidt: Now, I'll turn the call back over to Derek to share his perspectives on our outlook.

Derek Schmidt: Thanks, Mike.

Derek Schmidt: While industry headwinds are expected to remain near-term, I am confident in our team's ability to deliver exceptional results in fiscal 2025 and believe that our long-term growth outlook remains promising. Our teams on wavering commitment to excellence, coupled with the foundational growth investments we've made and will continue to make, have positioned us to successfully drive attractive top-line growth and even stronger earnings in fiscal year 2025. In summary, we're excited about the potential of the business in the new fiscal year and the long-term growth opportunities for the company.

Mike Ressler: With that, we will open the call to your questions.

Operator: Operator?

Operator: We will now begin the question-and-answer session to ask a question.

Operator: You may press star them one on your touch-tone phone.

Operator: If you are using a speaker phone, please pick up your handset before pressing the keys.

Operator: If your question has been answered and you would like to withdraw your question, please press star, and then two.

Anthony Levadinsky: Our first question comes from Anthony Levadinsky with Sidodian Company.

Anthony Levadinsky: Please go ahead.

Anthony Levadinsky: Good morning, gentlemen.

Anthony Levadinsky: Thank you tough environment, but for sure.

Anthony Levadinsky: So yeah, good morning.

Anthony Levadinsky: So first, just wanted to see if you could pass out the growth from the core business versus each house of distribution, and maybe you could just start with that and I had a couple of other questions as well.

Derek Schmidt: Yeah, I think what's encouraging Anthony is that our overall growth was driven both by gains in our core business as well as our strategic growth initiatives. Those being the market expansion initiatives that I mentioned earlier.

Derek Schmidt: And then you're familiar with the initiatives that we have to address expanded markets.

Derek Schmidt: Things like Z-Cliner and Flex and Charisma in our big box entries.

Derek Schmidt: So again, what I'm really encouraged by is the fact that on both of those fronts, we're making good headway and we're growing both aspects of the business.

Anthony Levadinsky: Okay, so great to hear that there's balanced growth from this strategy here.

Anthony Levadinsky: And I guess you're just looking at the quarter.

Anthony Levadinsky: So the sales trends to retail stores versus sales to e-commerce retailers.

Anthony Levadinsky: There was quite a bit of a divergence there in a quarter.

Anthony Levadinsky: How do you see that shaping up here?

Derek Schmidt: First quarter and through the balance of fiscal 25?

Derek Schmidt: I think on the e-commerce front and being the industry expert, Anthony, this won't come as a surprise.

Derek Schmidt: But on the e-commerce front, the whole industry has been sluggish.

Derek Schmidt: But e-commerce has been especially challenging.

Derek Schmidt: You know, where we largely compete on that front is through our ready to assemble home styles business.

Derek Schmidt: At lower price points and that part of the market, I think, is significantly more challenging than the rest of the market.

Derek Schmidt: I think until we see some of those macroeconomic factors like inflation, high interest rates, housing, actually start to stabilize.

Derek Schmidt: I think that part of the market is going to continue to be pretty choppy.

Derek Schmidt: Again, on a positive note, we're doing extremely well on the retail front.

Derek Schmidt: And I think that's going to continue to be a very positive catalyst for fiscal year 25 for overall growth.

Anthony Levadinsky: And then my last question here, so as far as from a cost perspective.

Anthony Levadinsky: So I know you mentioned the ocean freight costs and you put in a freight store charge there.

Anthony Levadinsky: Other than that, I mean, is there anything else to call off from a cost perspective that we should think about?

Mike Ressler: Anthony, I'll take that.

Mike Ressler: So that's really kind of the one area in terms of kind of supply chain inflation that we're feeling now.

Mike Ressler: You know, we've implemented surcharges to mitigate that.

Mike Ressler: And so far, we haven't seen a substantial impact to the volume, but we'll continue to monitor that situation quite closely.

Mike Ressler: In terms of other areas of cost within the supply chain, we have wages within our distribution centers.

Mike Ressler: There's a little bit of pressure there as well as within our Mexico operations.

Mike Ressler: You know, we would anticipate and kind of in the second half of the year, kind of the normal cost adjustment for the labor force down there.

Mike Ressler: But other than that, we haven't been seeing too much on the inflation side.

Anthony Levadinsky: Gotcha.

Anthony Levadinsky: All right.

Anthony Levadinsky: Well, thank you very much for the best of luck.

Anthony Levadinsky: All right.

Anthony Levadinsky: Thanks, Anthony.

Anthony Levadinsky: Thanks.

Operator: Again, if you have a question, please press star and then one.

Operator: This concludes our question in the answer session.

Derek Schmidt: I would like to turn the conference back over to Derek Schmidt for any closing remarks.

Derek Schmidt: In closing, I first want to acknowledge the passing of Budd Bugatch this week. As many of you know, Bud was a long time furniture and betting industry equity analyst, personal friend and my admired colleague and a follower of Flexsteel in a regular parts spin on our earnings call.

Derek Schmidt: But we'll be deeply missed and may he rest in peace.

Derek Schmidt: I also want to thank all of our Flexsteel employees for their dedication and outstanding performance during the fiscal year.

Derek Schmidt: I'm also thankful for all of you for participating in today's call.

Derek Schmidt: Please contact us if you have any additional questions and we look forward to updating you on our next call.

Derek Schmidt: Thank you.

Operator: The conference is now concluded.

Operator: Thank you for attending today's presentation.

Operator: You may now disconnect.

Q4 2024 Flexsteel Industries Inc Earnings Call

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