Flexsteel Industries Inc (FLXS) 2010 Q3 法說會逐字稿

We are now ready to begin our conference call. Welcome to our third-quarter fiscal 2010 operating results conference call. At this time, I will turn the call over to Mr. Tim Hall, Flexsteel's Vice President of Finance and Chief Financial Officer. You may now begin.

Thank you, Mason, and good morning, everyone, and welcome to our fiscal 2010 third-quarter operating results conference call. We appreciate your participation. Joining me this morning is Mr. Ron Klosterman, our President and Chief Executive Officer.

During our call today, we may make forward-looking statements that are subject to risk and uncertainty. A discussion of those factors that could cause actual results to differ materially from management's expectations is contained in the Company's SEC filings, including the most recent 10-K filed on August 26 and the press release dated April 20, 2010.

Any forward-looking statements or opinion as of now and we undertake no obligation to update or revise any of the forward-looking statements to reflect events or circumstances after today's call.

I have a few comments about our third-quarter operating results before I turn the call over to Ron for his comments. In the press release, you will notice that our sales increased approximately 11% for the quarter to $81.5 million. Our residential sales showed a nice increase of 15% to $61.6 million, and our commercial sales remain mostly unchanged at approximately $20 million.

For the nine months, we are showing a sales decrease of approximately 3.4% to $240.9 million. Our residential sales on a nine-month basis have increased 4% to $180.3 million. Our commercial sales have shown a decrease of 20% to $60.6 million.

Our gross margin has improved for the quarter and for the nine months, primarily due to better capacity utilization and lower fixed manufacturing costs that resulted from the activities we undertook in the prior fiscal year, writing down inventories and closing facilities and making our staff reduction. Additionally, we benefited during the first part of this fiscal year with lower ocean freight costs.

Our selling, general and administrative expenses are showing improvements for the quarter and the year-to-date, primarily due to widespread expense reductions through our facility consolidation and staffing reductions.

Net income for the quarter was $2.3 million, or $0.34 per share, and net income on a nine-month basis is approximately $1.00 a share, or $6.7 million.

We continue to have a strong balance sheet. As our operating income has improved and our working capital management initiatives continue, at the end of the period we had cash of $8.8 million and we had no bank borrowings.

Subsequent to the end of the quarter, we did enter into a new credit facility. It is an unsecured facility, and it matures on June 30, 2011 for $15 million. We believe that gives us plenty of flexibility in our financing as we go forward and provides the credit that we need to operate our business.

At this time, I will turn the call over to Ron so that he can make some comments on our operations. Ron?

Thank you, Tim, and good morning, everyone. We are pleased with our results for the quarter, especially -- actually in both of our main business areas. Our residential business with a shipment increase of 15%, at least comparing to most of the other publicly-owned furniture companies, I think that puts us in a very strong position and probably exceeds what many others have done.

And for us, that includes both upholstered furniture, which I think for most companies has led the recovery, and we had a nice increase there. But we also had a nice increase in our Wynwood case goods line, our bedroom and dining room, and also our Home Styles ready-to-assemble line. So we are seeing some increase in strength in all of those areas. And part of that, we believe, is we are gaining some additional market penetration, a little bit more market share, although it is a little early in the recovery to see what the longer-term impact of that might be.

Also on the Flexsteel upholstered side of the business, we are now increasing the number of galleries and studios that we have again, after a more challenging time in that area last year, and we now have about 625 galleries and studios. That's furniture displays branded as Flexsteel in independent furniture stores. We think, at least from what we can find out in the industry with publicly-owned companies, this is probably the largest display of furniture within independent furniture stores.

And you may recall that although many of our competitors in the home furnishings industry, although they sell as wholesalers to independent furniture stores, they also have their own retail for that. And we think it is actually a strength for us not having our own retail format, as we don't directly compete with our independent dealers. And I think that helps our position in getting more floor placements.

Just returned from the semiannual High Point Furniture Market last night, and there seemed to be some more optimism among most of the retailers that were there. Business certainly isn't great yet, but I think almost without exception everyone felt that the worst of this significant economic downturn is behind us and there are some brighter days ahead.

There are certainly issues out there yet with credit availability and overall consumer confidence and the levels of consumer spending, but a brighter picture for most of our retailers than we had experienced at either a year-ago's Market in April or this current -- or past fall's October Market. So I think they, too, feel better about what we're looking at going forward.

We do have a few challenges facing us yet in the home furnishings business. Our operations have benefited from lower ocean freight costs. Not just our Company, but across the industry and really across anyone who is importing, ocean freight costs probably bottomed out late last summer and started to increase as we got through the winter months and are now back at levels that actually we were at back in about 2008.

And it does not look like they may have peaked yet. There could be more coming. The ocean shipping companies had taken many vessels out of service when the demand dried up on product coming from Asia to the United States. And they are being very cautious to add back to their fleets at this point in time, and that continues to put pressure on both getting containers booked on ships, as well as the cost of those.

But one would think that this could very likely continue for several months, but at some point in time, there would be more capacity again and at least a stabilization of the costs.

We are also, for our domestic manufacturing, and also to some degree impacting products that we price and import from overseas, some raw material costs that are coming through. There's been a fair amount written in recent months about steel costs increasing. We are being notified by our suppliers of products that contain chemicals, whether petroleum-based or otherwise, that those costs are increasing, and many of those as suppliers to our Company are asking for increases. And we will have to battle through those as we go through the next several months. So that is a little update on the residential side of our business.

In our commercial side of our business, we weren't greatly disappointed in the fact that our volume for the quarter was flat with last year. Hopefully, that is a sign that we've finally found a bottom in the commercial side of our business, both our hospitality and our commercial office in particular. Those businesses last year held on a little bit longer volume-wise than did our residential business, but have declined throughout this fiscal year. And we are not seeing increases yet at this point in time and we think it could be a few more quarters before we see that.

It seems in the hospitality business that the hotel, either the properties themselves or the franchises, franchisees, have a very limited budget for refurbishings in new calendar year 2010, meaning that it could likely be 2011 before we start to see any significant increases there. The only positive light that I can put on that is that we do know, especially for refurbishings, that eventually the hotel properties will refurbish. So it is likely creating some pent-up demand as we get a little further down the economic cycle here, although it could be a while before we see that.

On the commercial office side, with the significant layoffs that many companies have done and the fact that at this point in time there is not a lot of rehiring going on, we think it could be several more quarters before we see some pickup there.

In our particular business, which is sort of the midpriced wood office furniture, we do think that and see that we are maintaining our placements with our dealers, whether they are wholesalers, distributors or the catalog houses that we sell through. So we don't think we are losing any position. It is really a demand issue that we will need to see some pickup, and then we think we will be much improved in that business also.

And lastly, within our commercial area, we now include our RV business, which was really devastated last fiscal year, when we had a top-line volume decrease of almost 70%. That business has stabilized. We are seeing some improvement in top-line revenue there, although it is nowhere near the levels that we were used to in, say, fiscal year 2007/2008. And it is likely to be some time before that totally comes back.

But with the consolidation that we've done there in our capacity, we are able to operate effectively at these relatively low revenue levels. So we still like the RV business and plan to continue to participate in it, and have maintained good relationships with our key customers in those areas.

So that is an overview of sort of where we've been here in the last few quarters and what we see in some of the key areas moving ahead. We are pleased with our progress in this fiscal year through three quarters, returning to the profitability level that we have. We would like to see and we will need some top-line growth going forward.

But it looks with hindsight now that perhaps a year ago in March was the low point, both in revenue and in our results, where we had done a lot of consolidation, et cetera. And we are pleased with the trend that we've seen now over the last four quarters and certainly all three quarters of this year, and look forward to continuing these strengths in the fourth quarter, the June quarter, and then into the beginning of fiscal year 2011.

With that, I will open it up for any questions that you may have this morning.

(Operator Instructions) There are no questions at this time. I turn the call back over to you.

Well, this is Ron again. We thank you all for listening in and your interest in our Company. And we look forward to speaking with you at the conclusion of our fourth quarter in June, which means that call will probably be in the early part of August sometime. Thank you.

This concludes today's conference call. You may now disconnect.