# Flexsteel Industries Inc: Form 10-Q for the period ended Dec 31, 2024

- Company: [Flexsteel Industries Inc](/companies/flxs.md) (CIK 37472)
- Form: 10-Q
- Filed: 2025-02-05
- Accepted by EDGAR: Feb 5, 2025, 17:06 ET
- Period: 2024-12-31
- Accession: 0000950170-25-014645
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/37472/000095017025014645/flxs-20241231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/37472/000095017025014645/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-10-01 to 2024-12-31 | $108.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-07-01 to 2024-12-31 | $212.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-10-01 to 2024-12-31 | $85.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2024-07-01 to 2024-12-31 | $167.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-10-01 to 2024-12-31 | $22.8m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2024-07-01 to 2024-12-31 | $45.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-10-01 to 2024-12-31 | $16.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2024-07-01 to 2024-12-31 | $32.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-10-01 to 2024-12-31 | $11.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2024-07-01 to 2024-12-31 | $17.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-10-01 to 2024-12-31 | $19.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2024-07-01 to 2024-12-31 | $70.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-10-01 to 2024-12-31 | $2.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2024-07-01 to 2024-12-31 | $4.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-10-01 to 2024-12-31 | $9.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-07-01 to 2024-12-31 | $13.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-10-01 to 2024-12-31 | $1.62 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-07-01 to 2024-12-31 | $2.38 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-10-01 to 2024-12-31 | $1.73 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-07-01 to 2024-12-31 | $2.53 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-10-01 to 2024-12-31 | 5,582,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-07-01 to 2024-12-31 | 5,554,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-07-01 to 2024-12-31 | $9.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2024-07-01 to 2024-12-31 | $1.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2024-07-01 to 2024-12-31 | $1.8m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2024-12-31 | $11.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-12-31 | $149.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-12-31 | $271.5m | us-gaap:Assets |
| Current liabilities | at 2024-12-31 | $50.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-12-31 | $109.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-12-31 | $161.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 14,766 characters.

### GENERAL

The following analysis of the results of operations and financial condition of the Company should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this quarterly report on Form 10-Q.

CRITICAL ACCOUNTING POLICIES:

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our 2024 annual report on Form 10-K.

#### Overview

The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three and six months ended December 31, 2024 and 2023. The amounts presented are percentages of the Company’s net sales.

|  | Three Months Ended December 31, 2024 | 2023 | Six Months Ended December 31, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| Net sales | 100.0% | 100.0% | 100.0% | 100.0% |
| Cost of goods sold | 79.0 | 78.1 | 78.7 | 79.3 |
| Gross margin | 21.0 | 21.9 | 21.3 | 20.7 |
| Selling, general and administrative expenses | 14.9 | 17.3 | 15.3 | 17.4 |
| (Gain) on disposal of assets held for sale | (4.6) | — | (2.3) | — |
| Operating income | 10.7 | 4.6 | 8.3 | 3.3 |
| Interest expense | — | 0.5 | — | 0.5 |
| Interest (income) | — | — | — | — |
| Income before income taxes | 10.7 | 4.1 | 8.3 | 2.8 |
| Income tax provision | 2.4 | 1.0 | 2.1 | 0.8 |
| Net income and comprehensive income | 8.3% | 3.0% | 6.2% | 2.0% |

#### Results of Operations for the Quarter Ended December 31, 2024 vs. 2023

Net sales were $108.5 million for the quarter ended December 31, 2024, compared to net sales of $100.1 million in the prior year quarter, an increase of 8.4%. The increase was driven by higher sales in home furnishings products sold through retail stores of $9.2 million, or 10.3%, led by unit volume increases, freight surcharges, and product mix. Sales of products sold through e-commerce channels decreased by ($0.8) million, or (7.1%), compared to the second quarter of the prior year. Lower sales in the e-commerce channel were driven by softer consumer demand.

Home furnishings backlog was $77 million as of the quarter ended December 31, 2024, an increase of 40.0% compared to $55 million in the prior year quarter.

Gross margin as a percent of net sales for the quarter ended December 31, 2024, was 21.0%, compared to 21.9% for the prior year quarter, a decrease of 90 basis points (“bps”). The 90-bps decrease was primarily due to ocean freight charge increases partially offset by cost savings initiatives.

Selling, general and administrative (“SG&A”) expenses decreased ($1.3) million to $16.1 million in the second quarter ended December 31, 2024, as compared to $17.4 million in the prior year quarter. As a percentage of net sales, SG&A was 14.9% in the quarter ended December 31, 2024 compared to 17.3% of net sales in the prior year quarter. The 240-bps decrease was due to leverage on higher sales and structural cost savings, partially offset by investments in growth initiatives for the quarter ended December 31, 2024.

During the quarter ended December 31, 2024, the Company completed the sale of its Dublin, Georgia facility which had been previously recorded as held for sale. The Company recorded a pre-tax gain of $5.0 million related to the sale. See Note 3, Assets Held For Sale, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information

Income tax expense was $2.6 million, or an effective rate of 22.4% for the quarter ended December 31, 2024, compared to an income tax expense of $1.0 million, or an effective rate of 25.5% during the quarter ended December 31, 2023. For the quarter ended

December 31, 2024, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes and the impact of foreign operations.

Net income was $9.1 million, or $1.62 per diluted share for the quarter ended December 31, 2024, compared to net income of $3.1 million, or $0.57 per diluted share in the prior year quarter.

On February 1, 2025, the President of the United States issued executive order “Imposing Duties To Address The Situation At Our Southern Border” which imposed a 25% tariff on all products of Mexico beginning February 4, 2025. Further executive order issued February 3, 2025, paused the implementation of these tariffs until March 4, 2025. The current situation is dynamic, and it is unknown if the two countries will reach an agreement to further pause or eliminate the pending tariffs. Given the Company’s sizable manufacturing operations in Mexico, should these tariffs be enacted they could have a material impact on our future cost of goods sold, profit and cash flow. The ultimate impact will be dependent on the magnitude and duration of the tariffs and the Company is assessing options to mitigate any potential impact.

#### Results of Operations for the six months ended December 31, 2024 and 2023

Net sales were $212.5 million for the six months ended December 31, 2024, compared to net sales of $194.7 million in the prior-year six-month period, an increase of 9.1%. The increase in sales of $17.8 million was driven by a $20.2 million increase related to home furnishing products sold through retailers offset by a decrease of ($2.4) million for home furnishing products sold through e-commerce channels.

Gross margin as a percent of net sales for the six months ended December 31, 2024, was 21.3%, compared to 20.7% for the prior-year six-month period, an increase of 60 bps. The 60-bps increase was primarily driven by sales volume leverage and structural cost reduction savings versus the prior year ended December 31, 2023.

Selling, general and administrative expenses decreased ($1.4) million in the six months ended December 31, 2024, compared to the prior-year six-month period. SG&A as a percentage of sales was 15.3% in the six months ended December 31, 2024, compared to the prior-year six-month period of 17.4%. The 210-bps decrease was primarily due to sales volume leverage partially offset by investments in growth initiatives for the six months ended December 31, 2024.

During the six-month period ended December 31, 2024, the Company completed the sale of its Dublin, Georgia facility which had been previously recorded as held for sale. The Company recorded a pre-tax gain of $5.0 million related to the sale. See Note 3, Assets Held For Sale, of the Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q for more information

Income tax expense was $4.5 million, or an effective rate of 25.3%, during the six months ended December 31, 2024, compared to income tax expense of $1.6 million in the prior-year six-month period, or an effective tax rate of 30.1%. The effective tax rate for the six months ended December 31, 2024, was primarily impacted by state taxes and the impact of foreign operations.

Net income was $13.2 million, or $2.38 per diluted share for the six months ended December 31, 2024, compared to net income of $3.8 million, or $0.71 per diluted share in the prior-year six-month period.

On February 1, 2025, the President of the United States issued executive order “Imposing Duties To Address The Situation At Our Southern Border” which imposed a 25% tariff on all products of Mexico beginning February 4, 2025. Further executive order issued February 3, 2025, paused the implementation of these tariffs until March 4, 2025. The current situation is dynamic, and it is unknown if the two countries will reach an agreement to further pause or eliminate the pending tariffs. Given the Company’s sizable manufacturing operations in Mexico, should these tariffs be enacted they could have a material impact on our future cost of goods sold, profit and cash flow. The ultimate impact will be dependent on the magnitude and duration of the tariffs and the Company is assessing options to mitigate any potential impact.

#### Liquidity and Capital Resources

Working capital (current assets less current liabilities) on December 31, 2024, was $98.2 million compared to $95.0 million on June 30, 2024. The $3.2 million increase in working capital was primarily due to a decrease in accounts payable of $5.1 million, a decrease in payroll and related liabilities of $4.6 million, and an increase in other current liabilities of $0.6 million offset by an increase in other current assets of $7.2 million, an increase in cash of $7 million, and a decrease in net trade receivables of $7.9 million, a decrease in inventories of $5.5 million and a decrease in assets held for sale of $1.7 million. Refer to discussion of working capital changes below, under *Net cash provided by operating activities*. Capital expenditures were $1.3 million during the six months ended December 31, 2024.

A summary of operating, investing, and financing cash flow is shown in the following table:

*(in thousands)*

|  | Six Months Ended December 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $9,091 | $17,166 |
| Net cash provided by (used in) investing activities | 6,525 | (3,058) |
| Net cash (used in) financing activities | (8,588) | (14,161) |
| Increase (decrease) in cash and cash equivalents | $7,028 | $(53) |

### Net cash provided by operating activities

For the six months ended December 31, 2024, net cash provided by operating activities was $9.1 million, primarily due to an increase in net income of $13.2 million, adjustments for non-cash items including a pre-tax gain on sale of assets of $5 million, stock-based compensation of $2.1 million, depreciation of $1.9 million, and a decrease in inventory of $5.5 million offset by an increase in trade receivables of $7.9 million, an increase in accrued liabilities of $4.9 million, a decrease in other current assets of $3.6 million, an increase in accounts payable of $5.4 million and a decrease of other assets and liabilities of $0.2 million.

For the six months ended December 31, 2023, net cash provided by operating activities was $17.2 million, primarily due to a decrease in inventory of $16.8 million, a decrease in trade receivables of $6.9 million, net income of $3.8 million, and adjustments for non-cash items including depreciation of $1.9 million, stock-based compensation of $1.8 million, and deferred income taxes of $0.1 million partially offset by an increase in other assets of $5.3 million, a decrease in accounts payable of $5.0 million, an increase in other current assets of $2.1 million, and a decrease in accrued liabilities of $1.7 million.

### Net cash provided by (used in) investing activities

For the six months ended December 31, 2024, net cash provided by investing activities was $6.5 million due to proceeds from the sale of Dublin of $6.7 million, and corporate owned life insurance proceeds of $1.1 million, offset by capital expenditures of $1.3 million.

For the six months ended December 31, 2023, net cash used in investing activities was $3.1 million due to capital expenditures.

### Net cash (used in) financing activities

For the six months ended December 31, 2024, net cash used in financing activities was $8.6 million, due to payments on the line of credit of $207.1 million partially offset by proceeds from the line of credit of $202 million, shares withheld for tax payments on vested shares and options exercised of $2.1 million, dividends paid of $1.8 million, and proceeds from issuance of common stock of $0.1 million.

For the six months ended December 31, 2023, net cash used in financing activities was $14.2 million, due to payments on the line of credit of $190.9 million partially offset by proceeds from the line of credit of $180.5 million, dividends paid of $1.7 million, $1.4 million paid for purchases of company stock, and $0.7 million paid for tax payments on employee vested restricted shares netted with proceeds from the issuance of common stock.

#### Line of Credit

On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders party thereto. The Credit Agreement has a five-year term and provides for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities. As of December 31, 2024, management believes the Company was in compliance with all covenants.

On April 18, 2022, the Company, as the borrower, entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.

Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 5.82%, on December 31, 2024.

As of December 31, 2024, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.

Letters of credit outstanding with the Lender as of December 31, 2024, totaled $0.9 million.

#### Contractual Obligations

As of December 31, 2024, there have been no material changes to our contractual obligations presented in our Annual Report on Form 10-K for the year ended June 30, 2024.

## Market risk

As filed, 2,470 characters.

*General –* Market risk represents the risk of changes in the value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. As discussed below, management of the Company does not believe that changes in these factors could cause material fluctuations in the Company’s results of operations or cash flows. The ability to import furniture products can be adversely affected by political issues in the countries where suppliers are located, as well as disruptions associated with shipping distances and negotiations with port employees. Other risks related to furniture product importation include government imposition of regulations and/or quotas; duties, taxes or tariffs on imports; and significant fluctuation in the value of the U.S. dollar against foreign currencies. Any of these factors could interrupt supply, increase costs, and decrease earnings.

*Foreign Currency Risk –* During the quarters ended December 31, 2024 and 2023, the Company did not have sales but did have purchases and other expenses denominated in foreign currencies, primarily the Mexican Peso. The wages of our employees and certain other employee benefits and indirect costs related to our operations in Mexico are made in Pesos and subject to foreign currency fluctuation with the U.S. dollar. The Company does not employ any foreign currency hedges against this exposure. A negative shift in the value of the U.S. dollar against the Peso could increase the cost of our manufactured product. In addition, the Company has certain asset and liabilities related to our manufacturing operations which are denominated in pesos, primarily our VAT receivable for recoverable VAT paid in Mexico. A negative shift in the value of the Peso against the U.S. dollar could result in the value of our receivable decreasing which may impact our earnings. Beginning in the third quarter of fiscal year 2025, we began using a derivative instrument to reduce our exposure to foreign currency risk from changes in the peso’s exchange rate for this exposure.

See “Risk \[MD1\] Factors” in Item 1A in the most recent Annual Report on Form 10-K for further discussion.

*Interest Rate Risk –* The Company’s primary market risk exposure regarding financial instruments is changes in interest rates. On December 31, 2024, the Company had no outstanding borrowings on its line of credit, exclusive of fees and letters of credit.

## Controls and procedures

As filed, 2,959 characters.

(a) *Evaluation of disclosure controls and procedures.* Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of December 31, 2024.

(b) *Changes in internal control over financial reporting.* During the quarter ended December 31, 2024, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

### Cautionary Statement Relevant to Forward-Looking Information for “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

The Company and its representatives may from time to time make written or oral forward-looking statements concerning long-term goals or anticipated results of the Company, including statements contained in the Company’s filings with the Securities and Exchange Commission and its reports to stockholders.

Statements, including those in this Quarterly Report on Form 10-Q, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause the Company’s results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect results are the cyclical nature of the furniture industry, supply chain disruptions, litigation, restructurings, the effectiveness of new product introductions and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, changes in foreign currency values, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, the amount of sales generated and the profit margins thereon, competition (both U.S. and foreign), credit exposure with customers, participation in multi-employer pension plans, disruptions or security breaches to business information systems, the impact of any future pandemic, and general economic conditions. For further information regarding these risks and uncertainties, see the “Risk Factors” section in Item 1A of our most recent Annual Report on Form 10-K.

The Company specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

## Risk factors

As filed, 185 characters.

There has been no material change in the risk factors set forth under Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024.

Filed Feb 5, 2025.
Source: SEC EDGAR, the filing index for accession 0000950170-25-014645. Last ingested by Listed: Oct 29, 2026, 05:20 ET. No prices; not investment advice.