DUBUQUE, Iowa – Flexsteel’s leaders broke down reasons for the company’s recent success at a virtual conference hosted by WaterTower Research last week, as well as detailing how it plans to boost profits further.
Flexsteel reported preliminary second quarter earnings of $100.1 million earlier this month, a 7.5% increase from last year and a $5.5 million boost from last quarter.
“We grew year over year by 7.5%, but if you factor out the impact of freight surcharges, our growth in unit volume would have been closer to 12%,” said Derek Schmidt, who was recently named company president. “We had a 21% growth margin compared with 17% last year. We generated $19 million in operating cash, which we used the majority of to slash our debt by half.”
Schmidt and CEO Jerry Dittmer attributed the company’s gains to a variety of reasons, including its multi-brand approach and omnichannel strength.
They also talked about the company’s concentrated targeting of younger consumers. The core Flexsteel brand has been expanded to include more modern styles and lower price points. It also has launched Charisma, a lower-priced modern brand, and Flex, a sub-brand dedicated to small parcel modular furniture. And, it is seeing success in HomeStyles, a value-centric brand sold almost entirely through e-commerce.
Schmidt and Dittmer also pointed to three ways the company is boosting profit through business strategies:
“Number one, we’re leveraging scale efficiencies from higher sales,” Schmidt said. “Two, we’re driving good cost-saving initiatives, and our operations folks are executing well. Third, we have established a higher margin threshold for all new products and business. We’re using product life cycle management as legacy products start to decline and new products start to accelerate. And we should see the overall margin profile of the company continue to elevate.
“We’re managing the balance sheet and cash flow,” he continued. “We’ve brought down inventory nicely, by about $17 million this year. And there’s still potentially $5 million to $10 million inventory reduction to be had for the remainder of fiscal 2024.”
Looking past 2025, the company’s growth goals are ambitious. It predicts net annual sales to reach $750 million (with acquisitions), gross margin of more than 23% and operating income margin of more than 8%.
Schmidt also gave his take on how the overall industry will fare in 2024 and years ahead.
“Expect the industry to be black to down over the next 12 months,” he said. “But more long term, we are bullish on the overall outlook for the industry. There’s a generational shift that’s happening. That’s a driver.
“Continued migration is another driver. The pandemic was the impetus for people moving state to state. I think there’s been broad adoption of remote work. When people move, it generates a furniture purchasing event,” Schmidt concoluded. “Third, housing production has not kept pace with household formation and population growth. When people move into a new home, they want to decorate it and update it. WE believe there will be lots of demand for new housing for years to come.”