by Company boosts sales outlook, but said $10 million in unanticipated supply chain costs will negatively impact earnings
DUBUQUE, Iowa — Case goods and upholstery resource Flexsteel Inds. expects an increase in fiscal 2022 second quarter sales above its previous estimates, but said it will have an adjusted operating loss due to ongoing volatility in supply chain costs that are expected to exceed $10 million during the quarter.
The company said that it expects sales for the second quarter ending later this month to be between $137 million and $143 million, for a mid-point range of $140 million, a 17.5% increase compared to the previous year. The previous estimate was between $130 million and $140 million, for a mid-point range of $135 million, up 13.4% year over year.
However, due to volatility in supply chain expenses, the company expects an adjusted operating loss, which excludes restructuring expenses. Previously, it projected an operating margin between 4.5% to 5.5% of net sales. It said it does expect to see operating profit in its fiscal third and fourth quarter.
“We’re competing well and expect to build on our strong sales growth momentum to deliver double-digit growth during the second quarter,” said Jerry Dittmer, Flexsteel’s president and CEO. “Our solid sales execution combined with favorable inventory positions and growth investments position us well for continued growth throughout the fiscal year, and we project to deliver 15 to 20 percent year-over-year revenue growth for the full year.”
Yet Dittmer added that cost headwinds in the supply chain are “substantial, unpredictable and pressuring our profit margins in the short term.” Specifically, the company is experiencing ancillary charges associated with ocean containers, such as demurrage and detention that have escalated to “extraordinary levels in our fiscal first quarter and exceeded $5 million. The lack of truck drivers and warehouse workers available to pick up, unload and return containers, combined with minimal “free days” from shipping carriers, have intensified these ancillary charges,” he said, adding that logjams at railway yards also have prohibited a timely return of containers and thus further increased ancillary expenses.
“While we anticipated lower ancillary costs in the second quarter compared to the first quarter, increased per diem rates, continued supply chain disruptions, and ongoing challenges with driver availability have driven even higher ancillary costs, which we estimate will exceed $10 million in the second quarter,” Dittmer said. “These higher expenses were unforeseen and will have an adverse impact on near-term profits as we now anticipate an operating loss in the quarter.”
He noted that the Flexsteel team continues to adjust its sourcing and transportation strategies to “manage the profit pressures created by the volatility in today’s global supply chain.”
“While we are disappointed with our profit outlook for the quarter, it does not reflect the commitment and strong execution of our employees or the company’s attractive prospects for long-term profitable growth,” he added. “ We are aggressively managing these cost headwinds and are committed to driving profitable performance throughout the second half of fiscal 2022.”
Full second quarter results are expected to be released in mid-late January 2022.
