Flexsteel Is Positioned For Success
Flexsteel Industries, Inc. (NASDAQ:FLXS) is a small-cap play on accelerating home-improvement trends that is positioned for growth in fiscal 2020. The company is the U.S. largest importer/manufacturer of wooden and upholstered furniture, a consumer vertical that has seen robust demand in the last quarter. The demand is driven by a combination of factors that amount to one thing; people are improving their homes and lifestyles and that begins and ends with furniture.
Over the past year, Flexsteel Industries has been working hard to trim the fat from its operations. The company has exited non-core businesses relating to recreational vehicles and the hospitality industry in order to streamline operations and reduce costs. This is an important factor to understand when looking at the 4th quarter results because much of the impact of the restructuring was felt during the quarter. To make matters worse, the 4th quarter included the bulk of the shut-downs which had a tremendous but one-time impact on the company’s margins.
“We have taken advantage of the economic slowdown to accelerate our business transformation program, exit non-core businesses and sharpen our organizational focus on high-potential products that can deliver topline and profitable growth over the long term,” said CEO Jerry Dittmer.
It Was A Rough 4th Quarter For Flexsteel Industries
The fiscal fourth quarter was a rough one for Flexsteel Industries. When the pandemic struck the company took immediate and drastic action to protect employees, customers, and capital including the shut-down of virtually the entire business. That said, revenue for the quarter fell only 35.3% from the prior year and much of that can be attributed to two things: the lingering impact of China tariffs and exiting non-core businesses earlier in the year.
Bottom-line results were equally impacted by divestiture, GAAP EPS came in at -$3.23 bringing the annual loss to -$3.40. The caveat is that once again when adjusted for buybacks and restructuring costs, the loss is much smaller and more in line with industry trends. Most segments of core business saw a negative impact in the quarter there is one bright spot; eCommerce. Sales of the company’s ready-to-assemble products jumped 86% for the quarter bringing the full-year gain to 35.7%.
“As retail stores began to reopen around Memorial Day, we experienced a surge of sales related to pent-up consumer demand, which was sustained for several weeks in June. Overall, we have seen a consistent trend whereby sales demand has returned to or slightly above historical levels for most retail customers within 3-4 weeks of reopening their stores,’ Mr. Dittmer added. The company expects the pace of sales to slow over the next four quarters but remains on track to return to profitability.
Flexsteel Pays A Dividend And Buys Back Stock
Flexsteel is one of the best-operated companies I’ve run across in my time as a stock market analyst, at least when it comes to the balance sheet. The company carries virtually no debt, has ample liquidity and plenty of cash. The company cut back on its capital returns early in the year to include the dividend and buybacks but did not suspend them entirely. The dividend was cut to $0.05 from $0.22 quarterly for a yield of 1.10% while buybacks were curtailed over the summer, but only temporarily. The company just announced another $8 million in buybacks that will help support price action over the next quarter.
The Technical Outlook: Flexsteel Is Melting Up
Shares of Flexsteel have been in a sustained uptrend since hitting the post-COVID bottom. That bottom, however, had as much to do with the trade war, tariffs, and restructuring as anything else. The move lower put the company at a tremendous value relative to book which is why the COVID-related losses have been recovered and more. Now, the stock is well on its way to reclaiming the highs set just before the Phase 1 trade deal was finalized, a move worth 15% in the near to short-term. That move is driven by rising demand and a new, brighter outlook for the entire furntire industry.
Longer-term, assuming Flexsteel exits its restructuring as well as expected, the stage is set for this company to not only return to profitability but experience growth over the next year. In that scenario, I see shares of FLXS moving up to new highs.
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