Consumer durables have been one of the best performing sectors in recent weeks with companies such as Bed, Bath & Beyond Inc. (NASDAQ: BBBY) and Mohawk Industries, Inc. (NYSE: MHK), seemingly hitting new highs almost every other day. It’s no surprise, given the fact interest rates are so low, that consumers are taking the opportunity to splurge on some big ticket purchases while they can. With interest rates set to stay at record lows until at least 2014, the growth in consumer durables probably has a fair amount of room left to go.
Flexsteel Industries, Inc. (NASDAQ: FLXS) fits nicely into the consumer durables category and is one of the oldest and largest manufacturers and importers of furniture products in the country. The company has been designing and building fine upholstered furniture in the United States since the 1890’s and posted sales of more than $350 million in 2012. The stock has just gone ex-dividend but news of expansion in Europe means there is value in this company to increase revenues in the months ahead.
The Iowa based company announced recently it had teamed up with Wales based Westbridge Furniture Designs Limited, in an attempt to bring quality U.S. furniture engineering to the United Kingdom. The launch brings the smaller but innovative Westbridge under the wing of Flexsteel and also brings a lot of attention to Flexsteel’s signature blue-steel seat spring; that is offered with a lifetime guarantee. Westbridge is now taking orders and crafting furniture that feature the Flexsteel brand name at its own factories in Great Britain, with more expansion predicted to follow in the region.
In its latest earnings release, Flexsteel reported earnings that helped propel the stock to a 52-week high of $26.29. Net sales were seen to increase by 12 percent to $185.8 million from the previous six month period, and net income was up to a record $5.8 million or $0.80 per share for the six months. This compares to $5.3 million or $0.76 for the previous period. Net sales also posted double digit growth with sales up 11 percent to $94.6 million. P/E is currently around 12.78.
The outlook from within the company was cautiously optimistic with the company expecting current order trends for commercial products to continue for the remainder of the fiscal year. This is consistent with our view that consumer durable stocks will continue to outperform at least until the Fed begins to increase interest rates. The next quarter earnings release for Flexsteel is set to be announced on 16 April and will be eagerly anticipated.
Flexsteel Industries has had a rapid rise over the last four years, going from just over $5 in March 2009 to a current price of $24.20. The move up has been a fairly smooth ride for investors and has handily outperformed the S&P 500 with significantly less volatility, (beta for this stock is 0.22). The stock has strong resistance around the $25 level but if this mark is breached, Flexsteel could quite easily move past $30.