Flexsteel Industries, Inc.

Good morning and welcome to the Flex Steel Industries first quarter fiscal year 2024 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Derek Schmidt, Chief Operating Officer and Interim Chief Financial Officer for Flex Steel Industries. Please go ahead.

Thank you, and welcome to today's call to discuss Flex Steel Industries' first quarter fiscal year 2024 financial results. Our earnings release, which we issued after market closed yesterday, Tuesday, October 31st, is available on the Investor Relations section of our website at www.flexsteelindustries.com under News and Events. I am here today with Jerry Dittmer, President and Chief Executive Officer. On today's call, we will provide prepared remarks, and then we will open the call to your questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified using words such as estimate, anticipate, expect, and similar phrases. Forward-looking statements by their nature involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Such risks and uncertainties include, but are not limited to, Those that are described in our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additionally, we may refer to non-GAAP measures which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of GAAP to non-GAAP measures. And with that, I will turn the call over to Jerry Dittmer. Jerry?

Good morning, and thank you for joining us today. I am pleased to share with you our first quarter fiscal year 2024 results. While our industry faces challenging business conditions and several of our publicly traded peers have seen double-digit sales decreases in the recent quarter. We have leveraged our growth initiatives to offset these challenges and deliver sales within 1% of the prior year quarter. This year-over-year sales comparison is adversely impacted by the elimination of ocean freight surcharges, which reduced revenue by approximately $7 million compared to the prior year quarter. In a prior year, we used this surcharge mechanism to pass through higher costs of ocean container delivery, which were significantly inflated due to supply chain issues. Container delivery costs normalized throughout the last fiscal year, and we subsequently eliminated this surcharge. Excluding the $7 million impact from this ocean freight surcharge elimination, sales growth related to unit volume and product mix was a robust 6.8%, reflecting our strong sales execution and the momentum of our growth initiatives. Our ability to drive growth in a difficult industry environment reinforces that we are competing well and gaining share. In addition, we continue our focus on operational efficiency and cost savings, which propelled a gross margin of 19.5% in the first quarter compared to 16% in the same quarter of the prior year. This margin expansion helped fund additional investment in growth initiatives while still delivering improved operating income of $1.9 million compared to $0.4 million in the same quarter of the prior year. We expect the business environment in the near term to remain challenged, The industry is arguably already in a recession as consumers have shifted discretionary spending to experience-based expenditures like traveling entertainment and away from higher-priced hard goods like appliances, electronics, and home furnishings. The list of headwinds working against the economy and consumer spending continues to grow. High interest rates and mortgage rates, rising fuel prices, geopolitical concerns, U.S. government uncertainty, student loan payment restart, shrinking pandemic savings, and rising credit card debt. Despite these external challenges, our team isn't deterred and remains intensely focused on profitably growing our business in fiscal year 2024. We enter the second quarter with positive momentum and are confident in our ability to grow sales both compared to last year and the first quarter. while also improving gross and operating margins over the first quarter. Our strategies are working. We'll continue to innovate, drive expedient and relevant new product development, and build strong brands. Regardless of demand uncertainties, we remain aggressive in identifying new growth opportunities while prudently managing costs and investing for future growth and profit enhancement. I'll now turn the call over to Derek to discuss our strategic initiatives and financial results, as well as our outlook for Quarter 2, 2024. I'll be back at the end of the call with some closing comments on what we see ahead.