High demand, looming supply issues impact Dubuque furniture company

Jerry Dittmer

One day after reporting strong third-quarter sales, Flexsteel Industries officials on Tuesday discussed the factors fueling that growth and the challenges that threaten to slow it.

The Dubuque-headquartered furniture company recorded sales totaling $118.4 million in the three months that ended March 31, a 19.8% increase compared to the same quarter during the previous fiscal year.

CEO Jerry Dittmer said Tuesday that the company has observed growth in virtually all product categories. Flexsteel reported $26.5 million in third-quarter sales for home furnishings products sold through retail stores, an increase of 34.4%. The company’s “homestyles” products, sold through e-commerce channels, increased by 23.4% to $2.8 million.

“We are competing very well, gaining retail placement and taking market share,” Dittmer said.

Flexsteel’s immediate future is influenced primarily by two developments: a soaring demand for home furniture products and ongoing, worldwide supply-chain issues.

The increase in consumer demand took root over the course of the COVID-19 pandemic, as people spent more time than ever at home and shifted their buying patterns accordingly. Dittmer said he remains “bullish” on future demand.

“The economy is building momentum, employment conditions are improving, and the recent government stimulus has infused additional consumer spending,” he said.

But supply-chain issues are intensifying.

A shortage of foam has had a ”crippling impact” on the furniture industry, Dittmer said. Shortages started last fall and intensified this spring, when a deep freeze impacted states such as Louisiana and Texas, which provide key chemical inputs for foam.

Some furniture manufacturers temporarily shut down in recent weeks, Dittmer said.

“We have been able to keep our manufacturing plants running and stable, albeit at reduced levels, due to proactive planning,” he said.

However, he acknowledged that the shortage has constrained production and could lengthen delays for consumers attempting to buy furniture.

Flexsteel is also grappling with a shortage of containers used to ship products across the ocean. The lack of containers and shortage of key materials have resulted in significant cost inflation.

“It is not surprising that we are seeing cost inflation, but the magnitude and frequency of these cost increases is unprecedented and unlike anything I have experienced in recent history,” Dittmer said.

Chief Operating Officer and Chief Financial Officer Derek Schmidt said the outlook for the fiscal year’s final quarter is tough to predict given all these variables.

“Our best estimate for fourth-quarter sales is between $120 (million) and $135 million, with the increased availability of foam and timely receipt of sourced products from ocean containers being the largest determinant between the high and low ends of this range,” he said.

Flexsteel houses its corporate headquarters in Dubuque. Last year, however, company officials shut down the Dubuque manufacturing operation.

The decision, which resulted in the loss of 213 jobs, was part of the company’s broader plan to exit the vehicle seating and hospitality markets and focus on home furnishings.

This shift so far has yielded positive results for Flexsteel, which has recorded net income of $17.2 million through the first three quarters of the current fiscal year. At this point last fiscal year, Flexsteel had lost $1.1 million.

Earlier this month, the company established an Innovation Center at 900 Jackson St. in Dubuque. Flexsteel’s design team uses the space to test out furniture and design prototypes that meet current customer trends.

Fielding a question Tuesday about new product development, Dittmer highlighted that recent opening.

“We’re pretty excited about it,” he said. “… We’re getting a lot of spirited innovation out of our new center.”