Furniture supplier Flexsteel Industries reported a net income of $4.8 million in the quarter that ended Sept. 30, down from $5.8 million in the same period last year.
Despite the dip, the company reported net sales for the period were its second highest ever for a first quarter, surpassed by 2015 results.
Net sales were $112 million, compared to $127 million in 2015, a decrease of 11.4 percent.
The 2016 quarter was negatively impacted by approximately $6 million primarily due to discontinuing select leather imports that failed to meet Flexsteel’s quality standards and delayed availability of technology components for new products. Casegoods net sales declined approximately $4 million reflecting continued weak demand at retail.
Residential net sales for the period included approximately $3 million of product sales related to clearing the west coast port congestion.
Gross margin as a percent of net sales for the quarter ended September 30 was 23.8 percent compared to 22 percent for the prior year quarter. Gross margin improvements were partially offset by lower absorption of fixed costs.
Working capital (current assets less current liabilities) at September 30, 2016 was $146 million compared to $143 million at June 30. Primary changes in working capital include increases in cash of $5.9 million and accounts payable of $2.3 million and decreases in payroll and related items of $2.2 million, other current assets of $1.9 million and accounts receivable of $1.8 million.
For the quarter ended September 30, capital expenditures were $4.5 million including $3.9 million for the upgrade of the Company’s business information system. Dividend payments were $1.4 million for the Company’s 298th consecutive dividend.
The Company believes that demand for furniture products in the United States will continue to be weak due to economic uncertainty for the remainder of the fiscal year. During the first half of fiscal year 2016, the Company reported a $6 million increase in net sales related to clearing of west coast port congestion. Net sales for the Company are expected to remain soft for the next fiscal quarter. The Company is focusing on streamlining product introductions to increase sales and controlling discretionary spending.
For the remainder of fiscal year 2017, the company expects to have the following expenditures:
$10 million for capital expenditures and $3 million as SG&A expense for upgrading its business information system to better meet market conditions, customer requirements and increase operating efficiency; and
$3 million in operating capital expenditures.
The company believes it has adequate working capital and borrowing capabilities to meet these requirements.
The company remains committed to its core strategies, which include providing a wide range of quality product offerings and price points to the residential and commercial markets, combined with a conservative approach to business. The Company will maintain its focus on a strong balance sheet through emphasis on cash flow and increasing profitability. The Company believes these core strategies are in the best interest of our shareholders.