Flexsteel Industries Inc (FLXS) 2011 Q1 法說會逐字稿

Welcome to Flexsteel's first quarter fiscal year 2011 operating results conference call. (Operator Instructions). At this time, I will turn the call over to Mr. Tim Hall, Flexsteel's Vice President of Finance and Chief Financial Officer. Go ahead, sir.

Thank you, Michelle. Good morning, everyone, and welcome to our first quarter 2011 conference call. We appreciate you calling in today.

Joining me this morning is Mr. Ron Klosterman, our President Chief Executive Officer.

During our call today, we may make forward-looking statements that are subject to risk and uncertainty. The discussion of the factors that could cause actual results to differ materially from our expectation is contained in our SEC filings, including our most recent 10-K filed on August 26, 2010, and the press release dated October 19, 2010, announcing our first quarter operating results.

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

I would like to highlight a couple of items from our first quarter press release before I turn the call over to Ron for his comments on operations and our business outlook.

Our sales for our first quarter were approximately $87.2 million. That is up about 15% from the $75.9 million that we reported in the year-earlier quarter.

Net income for the year -- or for the quarter was $2.3 million or $0.34 a share compared to $1.4 million or $0.21 a share in the prior year.

In this quarter we reported approximately $1 million for closing a manufacturing facility, planned to close in the middle of November. If you exclude that charge, our operating income was at an all-time high for our first fiscal quarter.

Our residential net sales were up about 16% for the quarter. Our commercial net sales were up about 12% for the quarter. The increase in our top line obviously benefited in our gross margin and our selling, general and administrative expense absorption.

At this time I will turn the call over to Ron for some of his comments on our operating results and our business outlook. Ron?

Thank you, Tim, and good morning.

Just adding a few comments to the results for the September quarter, we are certainly pleased with the overall results, and in saying that, we also need to mention the fact that the quarter was certainly aided by shipments of product from orders that we had received late last spring and into the early summer months.

As many of you are probably aware, Flexsteel, along with the -- certainly the home furnishings industry as a whole, experienced long lead times from a number of our suppliers in Asia throughout last spring and even into the early months of the summer. And with that, we had a higher than normal backlog at June 30th. In dollars, our backlog was about $49 million as a corporation, and we were able to receive product and ship down that backlog during the September quarter. That helped our sales and our revenue for the quarter.

Our backlog at the end of September is about $40 million, so it came down about $9 million during the quarter, primarily in home furnishings but also in some of our commercial office product where we also had some longer lead times and delay of product coming in.

Our $40 million backlog now at the end of September is up about 3% from what it was a year ago, and that is probably more reflective of what we have experienced as far as a current order trend in the last couple months of the September quarter, during August and September in particular.

As we end the quarter and move into the month of October, we are seeing that incoming orders in the month of October, especially for home furnishings, have slowed. Normally, as we get into late September and early October, we see some normal seasonal improvement. We have not seen that this year.

And I was just at the semiannual international home furnishings market in High Point, North Carolina, that officially began last Saturday. And in talking with many of our retailers and also a few of the other manufacturers and distributors in the industry, most everyone talked about slow business conditions, certainly in October, some even going back into September and August. And in fact, some going back all the way to July.

But -- so a normal uptick in business that we see in October is not taking place yet at this point in time. It is probably reflective of the -- I think the economy in general. Consumer confidence continues to be low.

We all know what unemployment is, although when you look at that on hopefully a positive side, over 90% of the people are working. I think a lot of those people who are working are at this time either saving money or perhaps paying down debt. Certainly not in a mood where they are going out and buying at a significant level.

So we are not I guess despondent about business conditions. We are a little bit concerned about them because, especially in our home furnishings, we would have normally seen more as a pickup than what we are seeing at this time. We will see how that plays out over the next several months.

Going back to the High Point Market, certainly on a more positive note, the retailers that did come in and look at our product -- both Flexsteel home furnishings and the Wynwood product, and our Home Styles ready to assemble product line -- like the product that we were showing. We got very favorable response from the new introductions that we have in all three of the show rooms.

And with that, we anticipate that now post market we will begin to write some orders with many of our dealers for this product, although once again, a lot of this product is made overseas, and the lead times before we start to see shipments, there is normally a 90 up to even -- it can be as long as 180 day delay before new product is shipped.

Another real highlight for our Flexsteel residential show was the fact that we introduced a new gallery format. The gallery dealers are certainly a strength of our Flexsteel business, and it's been about seven years I think since we last updated our format for our gallery dealers. And we had a number of them who came in and were very impressed with the new layout, the signage, the colors, etc., that we put into that program and have indicated that they want to update their galleries in their stores to our new format.

So -- and that is a very positive sign for us mid and long term because our experience tells us when that happens, we almost inevitably do more business with that dealer as they reset their floor and freshen their floor. So we are excited about that.

Another highlight in our Home Styles ready to assemble product is the outdoor patio type furniture. We came out with an initial group six months ago, and it was well received. We have expanded that product line. And the customers that come in and look at that, whether it's sold in catalogs or online, dot-com type business, were very receptive to our product offerings there. So we feel good about that.

Our Wynwood bedroom and dining room had a number of collections that were well-received with their dealers. And we believe we are continuing to improve our overall Wynwood product line.

Moving on to the commercial part of our business, in our commercial office during the quarter we announced the closing of what is our last full domestic manufacturing facility, production facility for commercial office, something that DMI has done for many, many years, and it's a sad day when we have to finally leave domestic production. But we no longer had either the number of groups nor the volume on those groups to support domestic production.

We are in the process of working to come out with similar styling and source it overseas and take care of our dealers in that direction. But certainly we are disappointed that we had to close the plant.

It will affect about 50 long-time employees of DMI, and we certainly regret that and wish them well in their future endeavors.

On the commercial office front, it appears as if business has bottomed, but without probably a significant increase in business hirings, especially in small businesses, improvement is likely to be slow and modest -- is what we are anticipating.

We are maintaining our market share there, but once again, until the overall business economy picks up, it is unlikely that we will see significant strong improvements in that area.

Hospitality business -- we are starting to see some pickup in ordering activity or potential projects, not in huge ways yet but at least better than it had been for several quarters.

There is certainly getting to be a pent-up demand for refurbishing of existing hotel properties. In many cases, we believe that a lot of properties should have been refurbished as long as two years ago, and those haven't been done yet.

We are watching and waiting very closely to see what the properties, the hotel properties, whether they are company owned hotels or there are franchisees involved, what they put into their budgets for refurbishings as we enter the first part of 2011.

We think it is likely we will continue to see some pickup in business there, but we can't really judge the velocity of that until we see what the properties are going to do with their budgets for refurbishings.

Our RV business, although certainly much smaller than it was a couple of years ago, has experienced stronger volume this summer and into the late summer or early fall. Orders are now starting to be a little bit lower, but that is sort of a seasonal trend, although they are still better than they were a year ago at this time.

And we are really anxious to attend the RVIA show in late November, right after Thanksgiving, to really see what the mood of the industry is, both with the OEMs that we are doing business with, as well as with their dealers across the country, and get a better feel for what the RV business might be like as we enter calendar year 2011.

I think just lastly, a comment on our balance sheet. It continues to be very strong.

Our total current assets at the end of the September quarter were $125 million, a little increase from June.

And part of that is in receivables, which reflects the higher sales volume for the September quarter. Our receivables continued to be quite current and our collections, quite good.

And our inventory levels are up probably about 7% or 8% from where they were in June. Most of that reflects getting us back to a position wherein -- where we have appropriate levels of inventory balances for products that we source overseas, as those levels were low throughout the spring and even at June 30th, and now we are at the proper level for what we hope is a normal fall selling season.

We certainly don't have any significant inventory there that we are worried about being over inventoried at this point in time.

We have no current debt. Our total liabilities on our balance sheet, both current and long-term are a little over $40 million. So you can see that our current assets are more than three times greater than all of the liabilities of our company.

So our financial strength is quite good as we go through the second quarter of fiscal year 2011.

With that I think we'll open it up for any questions you may have this morning.

(Operator Instructions). Bruce Baughman, Franklin.

I noticed in the press release you mentioned $3 million in CapEx for the balance of the fiscal year. That is a -- that is quite an uptick from the recent years. Where are you directing that?

Well, we haven't spent much money the last couple of years, and so part of it is just some placement equipment. We are likely -- we have not bought much in the way of delivery equipment the last couple of years. And obviously, tractors and trailers wear out over time, so we'll be directing some money towards those types of things, a few pieces of equipment that we have been holding off on in our manufacturing operations and that type of thing.

So would you say if the CapEx for the year comes out to be say 3 1/3 million, that would all be maintenance CapEx?

Yes, primarily all maintenance CapEx.

Okay, thanks.

(Operator Instructions). Bruce Baughman, Franklin.

If no one else has another question, before you leave I'd just like to congratulate you on the quarter and the -- a very nice string of six or seven quarters now. I am impressed by the margins, to tell you the truth, and the free cash flow generation. It's a great performance in a tough period.

Well, thank you Bruce. We are certainly very pleased with the results and very grateful for the efforts of all of our people to make that happen.

We feel quite confident that we have a very solid team working here at Flexsteel in all of our businesses, and obviously we're always greatly impacted by the overall economy, because most things we make are easily deferrable. But we feel good about our position within our industries and just look forward to a little bit more stability in the economy and a little return of consumer and business confidences and I think we will be fine.

Are you facing pressure from material costs at this point?

At this point in time -- there was a little bit of pressure last spring and early summer. It has waned. Again, I think in many cases we have suppliers that could use some relief, but the demand is just not overwhelming in most material categories. And they would like to push through increases but have a hard time getting them to stick I think.

Okay, thank you.

I have no further questions at this time.

I would like to thank everyone for participating today, and we will report to you our second quarter in the future here. Thank you very much.

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