FGI Industries, Inc. (Ticker: FGI) has reported a positive start to 2024 with its first-quarter results, showcasing a 13.2% increase in revenue year-over-year. The company credits this growth to strategic investments in its brands, products, and channels strategy, despite anticipating modest declines in the repair and remodel (R&R) segment.
FGI Industries' performance was particularly strong in the Sanitaryware and Shower businesses, with the company also announcing plans for expansion in India and the United Kingdom and the launch of a high-end custom kitchen cabinetry business, Isla Porter.
Key Takeaways
- FGI Industries reported a revenue of $31 million for the first quarter of 2024, a 13.2% increase from the previous year.
- The company witnessed growth in its Sanitaryware and Shower businesses, while the Bath Furniture segment experienced weaker demand.
- Gross margin improved to 27.4%, up from 26.5% in the previous year.
- Operating expenses increased due to inflation and investments in growth initiatives.
- FGI maintains its 2024 guidance with revenue expected to be between $115 million and $128 million.
Company Outlook
- FGI Industries is optimistic about its geographic expansion in India and the UK markets.
- The company is launching Isla Porter, a high-end custom kitchen cabinetry business, expected to drive growth.
Bearish Highlights
- Bath Furniture segment faces subdued demand and a market shift towards lower-priced offerings.
- GAAP operating income was negative $0.3 million, attributed to higher operating expenses from growth investments.
Bullish Highlights
- Strong operational performance with a significant increase in total revenue.
- Growth initiatives are progressing well, with expectations to fuel above-market organic growth.
Misses
- Despite increased revenue, the company reported a GAAP operating loss due to higher operating expenses.
Q&A Highlights
- Management maintains unchanged outlook for 2024, expecting continued growth and momentum from new programs.
- Trends in key channels indicate a moderation of inventory levels and a rebound in the pro Sanitaryware business.
- Gross margin expansion is anticipated to continue due to product line shifts and higher-margin business scaling.
FGI Industries' first-quarter performance reflects a solid start to the year, with strategic initiatives and market expansion plans set to propel the company forward.
The firm's focus on high-margin products and operational efficiencies is expected to maintain profitability, despite increased operating costs and challenges in the Bath Furniture segment.
Investors and stakeholders will likely watch closely as FGI Industries executes its growth strategies and navigates market dynamics in 2024.
InvestingPro Insights
FGI Industries, Inc. has demonstrated resilience with its first-quarter performance for 2024, yet the company's financial health and market position reveal a mix of challenges and opportunities. Here are some insights based on real-time data and InvestingPro Tips:
InvestingPro Data metrics indicate that FGI Industries is trading at a low Price / Book multiple of 0.43, suggesting that the stock might be undervalued relative to its book value. Despite recent revenue growth, the company's revenue has declined by 16.84% over the last twelve months as of Q1 2024. This juxtaposition of short-term revenue uptick against a longer-term downtrend could signal a need for cautious optimism among investors.
From the perspective of market sentiment, the stock has experienced a significant decline, with a 1-week price total return of -10.1% and a 6-month price total return of -28.68%. This reflects recent bearish sentiment which could be attributed to broader market conditions or specific challenges faced by the company.
Two InvestingPro Tips shed light on the company's current strategic position. FGI Industries operates with a significant debt burden, which may impact its financial flexibility and ability to invest in growth opportunities. On a more positive note, analysts predict the company will be profitable this year, indicating potential recovery and a turnaround in its financial performance.
Investors looking for deeper analysis and additional insights can find more InvestingPro Tips for FGI Industries, including valuation multiples and cash flow considerations, on the InvestingPro platform. With a total of 14 tips available, users can apply the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a comprehensive toolkit for making informed investment decisions.
Full transcript - FGI Industries (FGI) Q1 2024:
Operator: Good day, and welcome to the FGI Industries, Inc. First Quarter 2024 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jae Chung, Vice President of FGI Industries. Please go ahead.
Jae Chung: Thank you. Welcome to FGI Industries 2024 first quarter results conference call. Leading the call today are President and CEO, David Bruce; and Chief Financial Officer, Perry Lin. We issued a press release after the market closed yesterday detailing our recent operational and financial results. I would like to remind you that management's commentary and responses to questions on today's conference call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of our latest filings with the SEC. Additionally, please note that you can find reconciliations of historical non-GAAP financial measures in the press release issued yesterday and in the appendix of this presentation, which is available on the company's website. Today's call will begin with the performance review and strategic update from Dave Bruce, followed by a financial review from Perry Lin. At the conclusion of these prepared remarks, we will open the line for questions. With that, I’ll turn the call over to Dave.
David Bruce: Thank you, Jae. Good morning, everyone, and thank you for joining our call today. I am delighted to share our positive first quarter results, reflecting the strategic investments we've made in our organic growth initiatives across our brands, products and channels or BPC strategy. While the industry outlook anticipates modest declines in the R&R segment, we remain confident in our ability to outpace market trends through innovative products and programs. During the first quarter, we witnessed growth across most of our businesses, primarily fueled by volume and sustained demand from end markets, alongside gradual normalization of inventory levels. Notably, our Sanitaryware and Shower businesses demonstrated year-over-year growth. While our Bath Furniture segment faced subdued demand due to a shift towards lower-priced offerings, we are excited about our upcoming Bath Furniture assortment that is more aligned to new market pricing and design trends. Additionally, our Shower Systems business benefited from new customer program introductions while the pro Sanitaryware business rebounded as inventory levels stabilized and order flow improved. We are particularly pleased with our operational performance, reporting a total revenue of $31 million for the quarter, marking a robust 13.2% increase year-over-year. Our gross margin also improved to 27.4%, reflecting our sustained focus on higher-margin products. As we continue to invest in our growth initiatives, we are encouraged by the positive momentum witnessed in the first quarter. Furthermore, our geographic expansion plans in India and the United Kingdom holds significant promise for driving growth. In India, we are optimistic about leveraging new distribution partners to establish our presence in the burgeoning bath market. We are also excited about the imminent launch of Isla Porter, our high-end custom kitchen cabinetry business based on an innovative digital platform. With its emphasis on premium, trend-setting products and cutting-edge AI software, Isla Porter is poised to redefine cabinetry personalization, convenience and design. Our strategic growth initiatives are progressing well and are expected to fuel above-market organic growth in the future. I commend our FGI team for their dedication to our long-term objectives, positioning the company for success in 2024 and beyond. With that, I'll hand it over to Perry for a more detailed financial review.
Perry Lin: Thank you, Dave. And good morning, everyone. I will begin by providing additional details on the quarter. Next, I will update you on our current liquidity and balance sheet. Finally, I will conclude with our guidance for the full year 2024. For the first quarter of 2024, revenue totaled $31 million, an increase of 13.2% compared to the first quarter of 2023, driven by continued momentum in our Shower Systems business and a rebound in our pro sanitary business. Our Bath Furniture business continued to be weak, but is showing sign of an improvement. As Dave mentioned, the Bath Furniture market continues to be impacted by weaker demand and a trade down to lower-priced offering. In response, we are launching mid-tier product to better address the current demand environment. Demand trends in the shower category remains steady. We continue to expect our new program and product to continue driving growth in 2024. Gross profit was $8.4 million in the quarter, an increase of 16.8% year-over-year, driven by growth in our higher-margin products. Gross margin improved to 27.4% in the quarter compared to 26.5% in the prior year. Our operating expense increased to $8.7 million from $7.2 million in the prior year due to the inflation and ongoing investment in our growth initiatives, including marketing spend for Flush Guard, Isla Porter and kitchen cabinetry. GAAP operating income was negative $0.3 million in the quarter, down from breakeven year-over-year. Higher operating expenses due to investing in our growth initiatives accounted for the loss as overall revenue and gross margin were higher in the quarter. Moving to our balance sheet, at the end of the first quarter, FGI had $17.8 million of total liquidity, which we believe is more than sufficient to fund our growth initiatives. The decline in total liquidity from year-end 2023 was largely driven by an increase in working capital requirements, which is seasonally highest in the first quarter of the year. We are leaving 2024 guidance unchanged, with revenue in the range of $115 million to $128 million, adjusted operating income in the range of $2.8 million to $3.8 million and adjusted net income in the range of $1.2 million to $2 million. Please note that the guidance for adjusted operating income and adjusted net income excludes certain nonrecurring items. That completes our prepared remarks. Operator, we are now ready for the question-and-answer question of our call.
Operator: We will now begin the question-and-answer question. [Operator Instructions] At this time – our first question comes from Greg Gibas with Northland Securities. Please go ahead.
Greg Gibas: Hi good morning Dave and Perry. Thanks for taking the questions. Congrats on the results.
David Bruce: Thanks, good morning.
Greg Gibas: I guess, if you could touch a little bit more on kind of your outlook remaining unchanged. Curious if any changing expectations kind of implicit in that maintained range, kind of drivers of where there was some upside in Q1? And maybe if anything has changed on a quarterly cadence basis relative to your expectations?
David Bruce: Sure. Yes, it's a good question. And good morning Greg. Yes, Q1 went as expected. I think we've talked previously as we entered the year, we did expect some organic rebound. We didn't want to mention the word destocking anymore, and I think we've gotten past that. So we saw a nice rebound in our pro Sanitaryware business, we are also seeing the results of some new implementation of our new shower program rollouts that we had mentioned on some previous calls. So the momentum going into Q2 is as expected. It aligns with the guidance that we've put in place. That's why we haven't made any adjustments. And we continue to look forward to some of the additional new programs, rollouts that we expect that will be executed primarily in the second half. So as of now, I would say the cadence, order cadence and pipeline, are positive, and we are looking forward to continuing in Q2.
Greg Gibas: Okay, got it. And you alluded to it a little bit in your pro channel, but wondering if you could just kind of discuss high-level trends that you are seeing in your key channels, whether anything is kind of standing out or changing favorably or unfavorably?
David Bruce: Yes. I think what we're seeing – we are seeing and hearing things. So, we are starting to see a moderation of inventory levels, which is the bright spot. Again, we talked a lot last year about the heavy inventory positions that our customers faced throughout the year, and a lot of that has moderated, for the most part. And I think I mentioned on our last call, there are still some pockets in the market with individual customers or individual areas that base will be persistent. But for the most part, that's not going to be material on our business. And so what we're seeing is we are seeing a more organic rebound on the pro side. And there's some optimism there as well. The pros are looking at the builder side of the business, especially in the second half going into Q4 as a positive. Some of the builders have discussed that in some of their reporting as far as their confidence in building recovery. And we're feeling some of that momentum on our pro business. And I would say just generally on the Sanitaryware side, I think, the momentum with – due to the lack of the destocking now is going to rebound. And that's, again, that's something that we have in our guide because it was sort of expected as we entered Q1 and Q2.
Greg Gibas: Perfect, appreciate the color there. And as it relates to maybe your gross margin expectations or how those you expect to trend relative to Q1, should we think about kind of continued expansion just due to that product line shifts trend?
David Bruce: Yes. We believe we will maintain our gross margins, but we're pretty confident, based on a lot of the new business that we see coming our way, that we'll be able to maintain those margins. And we've talked about this before. We will accelerate our overall gross margin dollars as we scale a lot of the higher-margin businesses, like shower, which we're doing, but particularly kitchens, not only the Covered Bridge kitchens, but also the new digital venture with Isla Porter. So as those scale, you're going to see continued margin dollar growth. And I think we've also mentioned, as pro business rebounds and as we grow our Sanitaryware business, while the Sanitaryware business has lower gross profit percentages overall, we would expect, which is our midterm and long-term goal, is to grow our EBITDA, our EBIT percentage on our dollars, our gross margin dollars, right? So as you combine the dollars from the Sanitaryware business along with the higher gross profit percentages from our kitchens, we think we are going to be able to have a healthy growth in the short to midterm.
Greg Gibas: Great. Appreciate the color. Thanks guys.
David Bruce: Sure.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Bruce for any closing remarks.
David Bruce: Thank you for the time and interest today. We appreciate your continued support of FGI. Stay well, and if we don't connect during the quarter, we look forward to speaking with you on our next quarterly call.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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