Good day, and welcome to the Flexsteel Industries First Quarter Fiscal Year 2022 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Derek Schmidt, Chief Financial Officer and Chief Operating Officer for Flexsteel Industries. Please go ahead.

Thank you, and welcome to today's call to discuss Flexsteel Industries' first quarter fiscal year 2022 financial results. Our earnings release, which we issued after market close yesterday, Monday, October 25, is available on the Investor Relations section of our website, www.flexsteel.com, under News & 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 by the use of 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 the 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. In spite of continued global supply challenges, we executed well during the quarter and delivered strong year-over-year sales growth of 30.8% and solid profit results, which were in line with our guidance. I'm very encouraged by our sales performance. We delivered stellar growth in both shipments and orders in fiscal year 2021, and we continue that momentum into fiscal year 2022. Our near-term outlook for the market remains positive. The economy remains strong despite growing concerns about inflation and global supply chain disruptions. Consumer spending appears healthy and trends in new housing, geographical migration, and generational shifts are all positive catalysts for the long-term home furnishings growth. Both our retail and e-commerce customers remain relatively bullish on business conditions, although inflationary pressures, including higher ocean freight costs, present some risk of dampening consumer demand. While our growth outlook is promising, we are battling a multitude of significant global supply chain headwinds faced by many industries, including home furnishings. These challenges are pressuring near-term margins and creating choppiness in our profit results for the first half of fiscal 2022, which we expected. First, ocean container rates have climbed to historical highs, given large imbalances between supply and demand, and we anticipate rates will remain elevated through the first half of calendar 2022 or potentially longer. While we take appropriate actions to pass along these increased costs to the market, if we can, consumer price sensitivity and a lag in price realization are creating pressure on gross margins near term. Second, ancillary charges associated with ocean containers, such as demurrage and detention have escalated to unreasonable levels. 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…

Thank you, Jerry, and good morning, everyone. First quarter net sales were $137.7 million, up $32.5 million or 30.8% compared to $105.2 million in the prior year period. Our sales results were at the high end of our $130 million to $140 million guidance range despite the ongoing supply chain issues based in the quarter, which Jerry highlighted earlier. First quarter sales also grew sequentially from the prior quarter, which was our highest sales quarter of fiscal 2021 and is a clear reflection of the continued strong growth momentum in our business. We saw an increase in our home furnishing products sold through retail stores of $35.7 million or 40%. We are gaining wallet share with our large strategic customers and continue to increase retail product placements, which is an important lever and leading indicator of longer-term sales growth. Feedback from customers on our performance is very positive. We are competing well with a healthy inventory position of in-stock products and competitive lead times on custom manufactured products. Products sold through e-commerce declined $3.2 million or minus 19.7%. E-commerce sales were softer in comparison to the prior year quarter when online sales increased by 40% due to COVID-19 related buying ships. Compared with the pre-pandemic fiscal 2020 first quarter, e-commerce sales for the first quarter of fiscal 2022 increased 12% for a compounded annual growth rate of 5.8%. E-commerce sales were also adversely impacted in the quarter by large price increases on our products related to rising ocean container freight rates. Competitors have recently followed suit with similar price increases and as a result, we are seeing improved sell-through of our products. We expect to regain growth momentum in our e-commerce business throughout the fiscal year, driven by new customers, new products, and improved content and advertising effectiveness. From a…

Thanks. Given my confidence in our team and our strong growth momentum, we are aggressively working plans and investments to expand capacity to both fulfill the current backlog and support future growth. Our third and newest manufacturing plant in Juarez, Mexico, started operations in July and is ramping up production with improved polyfoam availability. Construction started on our new facility located in Mexicali and will be completed by June 2022. This month, we opened a new distribution center in Greencastle, Pennsylvania to better service our customers in that region and to handle increased inventory levels to support growth. We will be building inventory in the new DC over the coming months and expect to service customers by February 2022. In addition to these supply chain investments, we will continue to invest strategically in our business to improve our customers' experience, expand our digital and e-commerce capabilities, build our brands, and drive product innovation relevant to the market. We have recently showcased our new brand refresh with visual and experiential alignment across our showroom, website, product displays, and marketing assets. This was well received by consumers, customers, suppliers, and Flexsteel associates earning excitement about our strong path forward. In summary, we're excited about the long-term growth opportunities for the company, and we are making strategic moves to support our valued customers, realize our growth potential, and create shareholder value. With that, we will open up the call to your questions. Operator?

Great. Thanks. Well, in closing, I'd like to thank all our Flexsteel employees for their outstanding performance and service during the quarter. I'd also like to thank you who did call in to our call today. I realize our story is a lot like what you're hearing out in the news these days. But we do have really, really exciting growth plans in front of us as you can see in our release and you heard in our prepared comments. So we're very, very excited about the future and appreciate everyone, like I said, coming on, and we look forward to updating you on our next call. Thank you very much today.