Flexsteel (NASDAQ: FLXS) reported Q3 EPS of $0.72, versus ($0.16) reported last year. Revenue for the quarter came in at $118.4 million, versus $98.8 million reported last year.

Highlights for the Third Quarter Ended March 31, 2021

• Net sales increased 19.8% to $118.4 million compared to $98.8 million in the prior year quarter
• Organic net sales1, excluding discontinued Vehicle Seating and Hospitality product lines, increased by 32.9%
• Record retail home furnishings backlog of $140 million as of March 31, 2021, up 314% versus prior year driven by strong year-over-year order growth of 131% in the third quarter
• Gross margin increased to 19.5% compared to 14.0% in the prior year quarter
• GAAP net income per diluted share of $0.67 compared to net loss of ($0.66) in the prior year quarter
• Non-GAAP1 net income per diluted share of $0.72 compared to net loss of ($0.16) in the prior year quarter
• Share repurchases of $8.5 million during the quarter

Management Commentary

“Despite ongoing industry challenges related to supply chain, we executed well and delivered on continued strong demand for home furnishings products during our third quarter as we reported sales growth of 20% and organic sales growth of 33% compared to the prior year quarter, with growth in virtually all product categories,” said Jerry Dittmer, President and CEO of Flexsteel Industries.

“We enter the fourth quarter well positioned to continue profitable growth. Our sales momentum is strong and building. Our retail home furnishings orders in the third quarter were up 131% versus prior year and grew 22% sequentially from a strong order performance in the second quarter. This positive momentum gained traction throughout the third quarter as total company orders in March set a monthly historical record high for our home furnishings business.”

“While we are aggressively ramping up both our North American manufacturing capacity and global supplier capacity to best serve our customers and meet growing consumer demand for furniture, global supply chain issues remain a significant near-term challenge. Ocean container availability has been constrained since the beginning of COVID-19, and conditions worsened in our third quarter which constricted our ability to quickly replenish inventories for customers. Increased congestion at ports and railways has further exacerbated the lead-times for sourced product. While the container situation remains highly fluid, it did improve in March, and as a result we had a significant amount of inbound inventory on the ocean at the end of the third quarter. Material and labor shortages remain headwinds and have challenged our efforts to quickly ramp up manufacturing capacity. Most notably, a shortage of foam is having a crippling impact on the furniture industry as well as many other industries, including automotive. While foam shortage has been a concern since last fall, it was significantly aggravated by the recent deep freeze in Louisiana and Texas, where most of the key chemical inputs for foam are produced. While the foam shortage has forced several furniture manufacturers to temporarily shut down operations in recent weeks, we have been able to keep our manufacturing plants running and stable, albeit at reduced levels, due to proactive planning and improved forecasting with multiple strategic suppliers. Lumber availability has also been under significant pressure driven by heightened demand for furniture coupled with extraordinary growth in housing.”

“Given the shortages in ocean containers and key materials, we also experienced unprecedented cost inflation in the third quarter. Ocean container rates were three times higher than rates prior to COVID-19. Costs on several key materials in our home furnishings products have risen by as much as 60% to 100% with substantial cost increases realized specifically in the third quarter. While we attempt to pass through cost increases to the market whenever reasonably possible, there is an inherent lag between when we realize cost inflation versus prices increases. This cost-price lag is putting considerable pressure on our gross margins in the near-term. In response, we are prudently managing discretionary SG&A expenditures to partially offset the gross margin pressures until price realization catches up to cost increases.”

“Despite the current supply chain challenges, we are very encouraged by our strong sales and order performance and are working feverishly to expand capacity in all areas of our supply chain operations. As noted last quarter, we signed a new building lease in Juarez, Mexico for an additional manufacturing plant which is ready to start production once foam availability improves. Production capacity at the new facility will quickly ramp up throughout the remainder of the calendar year as material availability stabilizes and new workers are trained. Most of our strategic global suppliers are also ramping up their capacity and are committed to supporting Flexsteel’s growth ambitions in fiscal year 2022 and beyond. We continue to invest strategically in our business to improve our customers’ experience, expand our digital and e-commerce capabilities, build our brands, and drive product innovation relevant to the market. The future of the company is promising, and we remain confident in our ability to create value for our customers, employees, partners and shareholders.”

For earnings history and earnings-related data on Flexsteel (FLXS) click here.