Flexsteel Industries Inc (FLXS) 2011 Q2 法說會逐字稿

We are now ready to begin our conference call. Welcome to the Flexsteel Industries and Company second-quarter fiscal-year 2011 conference call. At this time, I will turn the call over to Mr. Tim Hall, Flexsteel's Senior Vice President of Finance and Chief Financial Officer.

Thank you. Good morning everyone, and welcome to our second-quarter fiscal-year 2011 conference call. We appreciate your participation this morning. Joining me on the call this morning is Mr. Ron Klosterman, our President and Chief Executive Officer.

During this call, we may make forward-looking statements. While these statements reflect our best judgment at the present time, they are subject to risks and uncertainties as described in our SEC filings. Accordingly, our actual results may differ materially from our current expectations. We undertake no obligation to update any forward-looking statements made during this call.

I'd like to highlight a couple of things out of our second-quarter press release, and then I'll turn it over to Ron for his comments.

Our net sales for the quarter were $82.8 million, a slight decrease of just less than 1%. The components of that were an increase in our residential seating products for about 1.5%, but our commercial was off 7.8% during the quarter.

During the quarter, we completed the consolidation -- the closing of a facility and recorded a pretax charge of $0.6 million for the write-down of inventory as a result of that closure.

Our gross margin for the second quarter was 22.7% versus 24% in the prior-year second quarter. That's really reflective of those write-downs of inventories for the plant closure.

Our SG&A for the quarter moved to 18.7% of net sales. In the prior year, it was 18.3%. We had an increase in the quarter for bad debts and some selling costs on the slightly lower net sales.

Net income for the quarter, including those items, was $0.31 per share compared to $0.45 in the prior-year quarter. On a fiscal year-to-date, our net sales are up 6.6%. The sales in our first quarter were helped by a strong backlog going into the year, primarily the result of being behind in product as we entered our fiscal year. We're still shipping out some of the late inventory arrivals in component parts.

Our net sales on a fiscal year-to-date for residential up 8.4%, and our commercial show increase of 1.6%. Our gross margin remains strong at 22.6% versus 22.9%, keeping in mind that $600,000 that I spoke of of inventory write-off as part of the facility closing is included in those numbers.

Selling and general and administrative expenses -- we dropped our selling -- SG&A expenses to 17.9% from 18.4%. Better absorption on the higher sales volume helped there as well.

During the first quarter, we reported employee separation and other costs for closing the facility of approximately $1 million.

Net income for the six months is $0.65 a share, including the items that I talked about for facility consolidation, versus $0.60 per share in the prior year.

Our balance sheet remains strong, reporting working capital of $95 million with no borrowings.

With that, let me turn the call over to Mr. Klosterman.

Thank you Tim. Good morning everyone. A couple of comments about our first six months of this fiscal year, and then a little bit about what we see ahead.

As Tim indicated, our total sales for the six months are up over 6%. A significant part of that did come from the higher-than-normal levels of backlog that we had at June 30 as we experienced, as many companies did on residential furniture delays in getting product, especially completed product, out of Asia after Chinese New Years last year. Deliveries were slow in our fiscal fourth quarter, and therefore rolled into our September quarter.

Probably if we took some of that sort of extra high backlog that we put into the July-to-September quarter, overall we're probably finding that shipments and order trends are relatively flat, up to -- or up a few percent modest increases this year over last year. As we now are entering the beginning of our third quarter and through the balance of our fiscal year, I think that's probably a trend that's going to continue. We are certainly not seeing significant weakness in business, but it's not growing very rapidly.

Tim also mentioned on the commercial side, I think it was up about 1% or so for the first six months. We are seeing some softness there, yet both in commercial office and in the hospitality part of our business. Our recreational vehicle component is actually up nicely for the first six months of this year. Although it's currently a little weak because of seasonal factors that normally hit us in January and February, the first part of December, we attended the Recreational Vehicle RVIA show in Louisville, Kentucky, their annual show.

Most of the manufacturers and especially the ones that we deal with feel that the industry is in pretty good shape going into the early part of calendar year 2011. Retail inventory levels are appropriate for the volume that's being done. Hopefully, credit is easing a little bit, both for the RV retailers, the dealers, for their inventory on their lots, and also a little bit for the consumer who comes in to purchase an RV. So although we are seeing a little slowness during these winter months, we think that, as we get towards the spring, things will pick up and hopefully approach or exceed last year's levels.

On the residential front, the Las Vegas furniture market at the World Market Center took place the latter part of January. At that market, this year versus last year, our attendance was about the same, and yet certainly the optimism of the dealers is stronger than it was a year ago. The order writing, although some of the writing that's done at these markets is always done after the markets, was relatively solid. We had some new products hit the market, although our major product introduction continues to be at the spring and fall international Furniture Market In High Point, North Carolina. There seem to be good reception of our product, and it was good to hear dealers come in and talk about having reasonably good business in December, as well as solid business the first couple weeks of January.

I don't know what it would be like if I talked to many of them the last few days after the significant snowstorm that is going through from Dallas to Oklahoma to St. Louis to Chicago, etc., to the East Coast. I assume they didn't see many customers for a few days this week. The East has certainly been hit with several weekends of challenging weather. So, we are seeing business a little bit slower in the eastern United States, but hopefully more of that is due to weather, and as things clear up there, we will see a little stronger return to normal levels.

Going back to the commercial office and the hospitality, in those two segments, it's not that things have gotten any worse, but we just aren't seeing much of a pickup yet. On the hospitality side, there does seem to be more activity going on as far as projects, refurbishings in particular, starting to be talked about and inquired about by the hoteliers. Occupancy rates seem to continue to be climbing modestly in that area, so we are still hopeful that we'll see some pickup in that business as we get into the late spring of 2011. Then there should be a lot of pent-up demand that should help us significantly as we look ahead over the next couple of years.

The commercial office business, the transaction business is spotty. Some areas are a little stronger than others, but we have not seen a substantial rebound yet. That may not come until we see more businesses start to re-hire and expand and grow again. So we are -- I know the numbers keep coming out, and although the comparisons are stronger compared -- as compared to where they were over the last couple of years, they are certainly not back at the levels that we would like to see them at. So we continue to watch that business as we go forward.

I think the last thing that I would like to comment on -- beginning in probably early December, maybe even late November, and up and through the end of January, we are getting a lot of notifications on cost increases, on price increases, from our suppliers, both for selected raw material items. In particular fabric has been hit very hard, a lot of that. Many of you are aware that cotton commodity prices have gone up dramatically. That's had an impact on polyester and some of the other fibers that are used in the manufacturing of upholstery fabric. We are seeing increases on many fabrics, and we are hopeful that, if the cotton commodity issue settles down again, that some of those will be rolled back. We've had other material increases either announced or a few of them already in place. But a lot of them will probably hit us in the month of February or around March 1. Some of those are steel-related. Some steel component parts are going up. We've also had some pressure on leather over the last about three months. With that, a number of the fully sourced items that we've seen that we are buying from overseas are announced price increases, once again some of which we are taking now, some of which will take effect as we move into the latter part of this month and March 1.

We've also had some increases on some of our wood products, case goods out of Asia. So there's some pricing pressure. We will try and pass the cost increases on as best we can and as quickly as we can, but some of these items right now, their pricing is still a little bit volatile and it may take us a little while to figure out exactly how significant the increase is, and the appropriate amount to try and adjust our sell prices to our dealers. So kind of an uncertain time right now.

We keep hearing I think overall from our Federal Reserve in particular about inflation being close to nonexistent, and yet we are seeing it in many of our products. I suspect that we are not the only company feeling this affect.

So with that, I'll conclude my remarks. I think we are ready to take questions.

(Operator Instructions). At this time, there are no questions in the queue. I'll turn the call back over to the presenters.

Thank you all for joining us this morning. We feel very confident about our business plan and will continue to execute and provide a nice return to our shareholders as we move forward. We look forward to speaking with you in mid to late April when we release our results for the third quarter of the fiscal year. Thanks again.

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