Sign in

You're signed outSign in or to get full access.

FI

FLEXSTEEL INDUSTRIES INC (FLXS)·Q4 2024 Earnings Summary

Executive Summary

  • Flexsteel delivered Q4 FY2024 net sales of $110.8M (+4.7% YoY) near the top end of prior guidance, with adjusted operating margin at 5.6% (vs. 4.0% prior-year), and GAAP operating margin at 6.9% boosted by a $3.3M gain on sale of the Starkville facility .
  • Sales orders rose 17.1% YoY to $108.5M and backlog increased 20% YoY to $59.5M, signaling sustained demand momentum into FY2025 .
  • FY2025 sales guidance was raised to $420–$436M (from $416–$432M), with GAAP operating margin 5.5%–6.5% and FCF $20–$30M; Q1 FY2025 guidance points to revenues of $100–$105M and operating margin of 5%–6% .
  • Key catalysts: raised FY2025 sales guidance; third consecutive quarter of sequential adjusted margin expansion; strong brick-and-mortar performance offsetting e-commerce softness; ongoing cost savings and portfolio optimization amid ocean freight inflation .

What Went Well and What Went Wrong

What Went Well

  • Third consecutive quarter of mid- to high-single-digit YoY sales growth with Q4 net sales +4.7% YoY and strong orders/backlog; “our strategies to gain share…are working” (Derek Schmidt) .
  • Adjusted operating margin improved to 5.6% (+160 bps YoY), marking a third consecutive sequential improvement; driven by sales growth, operational execution, cost savings, and disciplined product portfolio management .
  • Working capital efficiency and cash generation: Q4 operating cash flow $7.5M; debt reduced by $9.4M in the quarter; line of credit down to $4.8M at quarter-end .

What Went Wrong

  • E-commerce sales declined 11.7% YoY in Q4 due to softer consumer demand, with Homestyles brand exposed to lower price points; management expects continued choppiness until macro stabilizes .
  • SG&A ratio increased to 17.0% (vs. 16.0% prior-year) in Q4, including $1.5M non-recurring stock-based compensation from CEO transition equity modification .
  • Ocean freight cost inflation necessitated surcharges; management warned cost pressure and competitive pricing conditions could drive variability in Q1 FY2025 performance .

Financial Results

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Net Sales ($USD Millions)$105.8 $100.1 $107.2 $110.8
Diluted EPS (GAAP, $)$1.91 $0.57 $0.33 $0.89
Adjusted Diluted EPS ($)$0.36 $0.57 $0.67 $0.75
Gross Margin (%)20.0% 21.9% 21.7% 21.3%
Operating Income ($USD Millions, GAAP)$4.2 $4.6 $3.0 $7.6
Operating Margin (%)4.0% 4.6% 2.8% 6.9%
Adjusted Operating Income ($USD Millions)$4.2 $4.6 $5.6 $6.2
Adjusted Operating Margin (%)4.0% 4.6% 5.2% 5.6%
Consensus Revenue (S&P Global)N/A*N/A*N/A*N/A*
Consensus EPS (S&P Global)N/A*N/A*N/A*N/A*

Note: *Consensus values unavailable from S&P Global (daily request limit exceeded).

Segment and channel dynamics

Channel MetricQ2 2024Q3 2024Q4 2024
Retail store sales change ($USD Millions, YoY)+$9.9 (+12.5%) +$8.5 (+9.7%) +$6.7 (+7.3%)
E-commerce sales change ($USD Millions, YoY)-$2.9 (-20.3%) -$0.4 (-3.6%) -$1.7 (-11.7%)

KPIs and balance sheet

KPIQ3 2024Q4 2024
Sales Orders ($USD Millions)$111.5 $108.5
Order Backlog ($USD Millions)$61.5 $59.5
Operating Cash Flow ($USD Millions)$7.2 $7.5
Line of Credit Borrowings ($USD Millions, end of period)$14.2 $4.8
Cash ($USD Millions, end of period)$4.6 $4.8
Working Capital ($USD Millions)$96.2 $95.0
Inventory ($USD Millions)$96.6 $96.6

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales ($USD Millions)FY2025$416–$432 $420–$436 Raised
GAAP Operating Margin (%)FY20255.5–6.5 5.5–6.5 Maintained
Free Cash Flow ($USD Millions)FY2025$20–$30 $20–$30 Maintained
Line of Credit Borrowings ($USD Millions)FY2025$0 $0 Maintained
Sales ($USD Millions)Q1 FY2025N/A$100–$105 New
GAAP Operating Margin (%)Q1 FY2025N/A5–6 New
Free Cash Flow ($USD Millions)Q1 FY2025N/A$0–$5 New
Line of Credit Borrowings ($USD Millions)Q1 FY2025N/A$0–$7 New

Additionally, prior Q4 FY2024 guidance was met or exceeded: Net sales $107–$112M vs. actual $110.8M; adjusted operating margin 5.2%–6.0% vs. actual 5.6%; GAAP operating margin 3.5%–4.3% vs. actual 6.9% due to gain on property sale (surprise upside) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Macro/Consumer demandHeadwinds from shift to experiences; confident in profitable growth Sluggish industry for 6–12 months; still gaining share Weak demand expected to persist; focus on growth despite headwinds Stable headwinds; continued outperformance
Supply chain & ocean freightOcean freight surcharges removed in prior year; potential reactivation if rates spike Higher ocean freight costs offset by cost savings; gross margin 21.5–22.0% guide for Q4 Surcharges implemented due to rising ocean freight; monitor impact on volume Inflationary; mitigated via surcharges & savings
Manufacturing network optimizationAnnounced Dublin, GA closure; expected $4.0–$4.5M annualized savings Q3 restructuring $2.6M; savings expected in Q4 Closure completed; $0.4M restructuring in Q4; gain on Starkville asset sale $3.3M Execution completed; benefits flowing
Product performance (Zecliner, Flex, Charisma)Zecliner placed in 960 retailers; strong innovation pipeline Broad new introductions; 90% activation; strong showroom traffic Continued momentum; balanced core + new markets growth Strengthening
Channel mix (Retail vs. e-comm)Retail strength; e-comm weaker, down double digits Brick-and-mortar outperformance vs. e-comm down double digits YOY Retail +7.3% vs. e-comm -11.7% YoY; near-term e-comm remains challenging Retail robust; e-comm soft
SG&A & margin ambitionSG&A investment; margin expansion drivers outlined Aspiration: 23% GM, SG&A 15–16%, 8% op margin over 3–5 years Adjusted margin expansion continues; Q4 SG&A includes $1.5M non-recurring stock comp Margin trajectory intact
Capital allocation/M&ADebt to zero by FY2025; target outdoor/DTC/modern lifestyle acquisitions Balance sheet strengthening; debt reduction priority Debt reduced further; FY2025 target $0 borrowings Progressing; optionality increasing

Management Commentary

  • “I am extremely pleased with our fourth quarter results…third consecutive quarter of mid- to high-single digit year-over-year growth…strategies to gain share…are working due to our investments in innovation, new product development, customer experience and marketing.” — Derek Schmidt, CEO .
  • “Adjusted operating margin was 5.6%…third consecutive quarter of sequential…improvement…keys…sales growth, strong operational execution, cost savings and product portfolio management…” — Derek Schmidt .
  • “GAAP operating margin exceeded our guidance…primarily due to a one-time gain on the sale of our former manufacturing facility in Starkville, Mississippi, of $3.2 million…Adjusted operating margin…within our guidance range…” — Michael Ressler, CFO .
  • “We expect gross margins between 21.5% and 22.0% in the first quarter [FY2025]…driven by savings from our manufacturing network optimization and favorable mix, partially offset by…higher ocean freight costs.” — Michael Ressler .

Q&A Highlights

  • Balanced growth: Core retail and strategic growth initiatives (Zecliner, Flex, Charisma, big-box) both contributing; retail strong, e-commerce weaker near-term .
  • Costs: Ocean freight surcharges implemented to mitigate rising rates; labor cost pressure in distribution/Mexico; monitoring for volume impact .
  • SG&A path: Long-term target mid-15% SG&A supporting 8% operating margin; near-term SG&A elevated by variable retail commissions and incentive accruals; actions taken to reduce people-related costs for FY2025 .
  • Mix and categories: Soft seating up double digits; case goods being reset with new lineup to drive FY2025 growth; e-comm down double digits YoY .
  • Backlog/Orders: Q3 backlog $61.5M; Q4 orders $108.5M (+17% YoY); Q4 backlog $59.5M (+20% YoY) underpinning near-term momentum .

Estimates Context

  • S&P Global Wall Street consensus estimates could not be retrieved due to a daily request limit error; therefore, comparisons to consensus EPS and revenue for Q4 FY2024 are unavailable.*
  • Management’s guidance anchors expectations: Q4 actuals tracked within or above guidance ranges; FY2025 sales guidance was raised from $416–$432M to $420–$436M .

Note: *Consensus values unavailable from S&P Global (daily request limit exceeded).

Key Takeaways for Investors

  • Raised FY2025 sales guidance to $420–$436M signals confidence in demand and execution; operating margin guide maintained at 5.5%–6.5% .
  • Continued margin expansion: adjusted operating margin improved to 5.6% in Q4; drivers include mix, cost savings, and operational leverage even as ocean freight inflation returns .
  • Brick-and-mortar strength offsets e-commerce softness; expect near-term e-commerce headwinds until macro stabilizes; retail grew +7.3% YoY in Q4 while e-comm fell -11.7% .
  • Balance sheet strengthening supports optionality: debt down to $4.8M on the line of credit at Q4 end; strong cash generation and inventory optimization continue .
  • Network optimization largely complete; Q4 restructuring minimal; Starkville asset sale gain provided GAAP margin upside; FY2025 should reflect steady savings run-rate .
  • Product engine and new markets: Zecliner, Flex, Charisma gaining traction; high activation rates from recent product launches indicate durable growth drivers .
  • Near-term trading lens: Watch ocean freight costs/surcharges impact on volume, Q1 gross margin progression (21.5%–22.0% guided), and backlog/ordering trends as catalysts for estimate revisions and sentiment .