DUBUQUE, Iowa – Pandemic-related demand was only part of Flexsteel’s 18% organic revenue growth in its fiscal 2021 first quarter.
The bigger story, according to the full-line manufacturer and importer, is an 18-month strategic restructuring that eliminated unprofitable hospitality and vehicle seating product lines such as hospitality, expanded in the e-commerce channel, and improved service after biting the bullet on a failed ERP implementation that led to operational inefficiencies.
With that repositioning, Flexsteel does not view pandemic-related demand as a temporary spike, but rather as setting a new benchmark for future performance.
“Our recent quarterly results are more than just the product of pandemic influences; they are actually the early fruits of the many strategic decisions and sweeping changes we’ve made over the past 18 months,” Jerry Dittmer, president and CEO of Flexsteel recently told his organization in a virtual town hall meeting.
In addition to double-digit organic net sales growth (and 5% GAAP revenue growth) in its fiscal first quarter ended Sept. 30, Flexsteel reported operating margins approaching the highest seen in its 127-year history. Brick-and-mortar retail sales rose 15%, and the Homestyles e-commerce brand was up 40%, while retail orders saw 60% growth in the quarter.
That led to a record backlog of $89 million at quarter’s end, Dittmer told analysts in a conference call discussing results.
Dittmer said the high demand “has not caught us off-guard” and that the restructuring plan begun early last year already was positioning the company for aggressive growth. “We just didn’t know that a pandemic was going to fuel it,” he continued.
Along with creating new capacity through new production lines and additional shifts at both North American manufacturing facilities, Flexsteel aims to secure additional North American and international capacity in 2021. Dittmer also noted in the first-quarter conference call that acquisitions “are absolutely on the table” to fuel expansion and the next phase of growth.
“We’re going to be very disciplined in terms of what we go after,” he said. “Our criteria are twofold. One is a strategic fit. In other words, does it align and accelerate our long-term strategic plan? And then the second determinant is does it create value for our shareholders,” adding that an acquisition would need to give take Flexsteel into new products, new markets and new business models.
“What we will not do is go out and do acquisitions just to put higher sales numbers on the board,” Dittmer continued. “So again, if it has strategic fit, if it brings us new capabilities or access to new products and new markets that’s what we would consider.”
Building inventory to support continued strong consumer demand is top priority. Although Flexsteel faces extended lead times for some globally sourced items, the company remains in a strong inventory position and continues to make aggressive moves to keep it that way.
“We’ve got record amounts of inventory both ready to ship and shipping,” said David Crimmins, Flexsteel’s vice president of sales. “We’re bringing more product in and expanding our warehousing footprint to support it along the way.”
Crimmins added that retailers can see inventory in real time through its exclusive online portal, and the company has a healthy inventory position on several key product groups.
Flexsteel also is capitalizing on the e-commerce boom in home furnishings. Earlier this year, Flexsteel began arming local independent retailers and large players alike with effective online content to drive consumers to customers’ brick-and-mortar and online stores. The company looks to make e-commerce “truly hands-off for our retailers,” according to Crimmins.
“They simply tell us they want to participate, and literally within days they are registered, their websites are receiving a seamless syndication of Homestyles content, and commerce begins,” he continued. “Like our Flexsteel brand, we are in a solid inventory position with Homestyles product.”