Flexsteel Industries Inc. BY ARI LAZAR AND MICHAEL MIGUT NOVEMBER 3, 2015

Agenda  Introduction  Macroeconomic Overview  Business Overview  Stock Market Prospects  Industry Overview  Financial Analysis  Projections  Valuation  Recommendation

Introduction  Current Price: $44.39  Industry: Furniture/Home Furnishings  P/E Ratio:  52 Week Range: $ $46.10  Dividend Yield: 1.74%  Headquarters: Iowa  Incorporated in 1929  Target Market: United States Sources: Google Finance and Bigcharts.com

Macroeconomic Overview Interest Rates in the US Sources: Mortgage-X-.Com, Nasdaq.com, and Avondale.com (Avondale Asset Management)

Business Overview “The Company operates in one reportable segment, furniture products. Our furniture products business involves the distribution of manufactured and imported products consisting of a broad line of upholstered and wooden furniture for residential and commercial markets. Set forth below is information for the past three fiscal years showing the Company’s net sales attributable to each of the areas of application” Focus on both B2B and B2C sales “The Company operates manufacturing facilities that are located in Arkansas, California, Georgia, Iowa, Mississippi and Juarez, Mexico” Sources: Company 10K

Porters 5 FLXS Threat of New Entrants Moderate Simple Industry Scaling buffer Threat of Substitutes High Elastic Demand for Product Supplier Bargaining Power Low Many suppliers of raw materials Buyer Bargaining Power High Many Substitutes Rivalry Moderate/High Minimal Product Differentiation Product Saturation

SWOT Strengths Hand made products Blue Steel Spring No debt, high liquidity 2 new distribution centers Long Term Outlook Weaknesses High transportation costs Limited pricing power Competitors can copy products quickly Opportunities Few regulations Constant innovation Online sales growth International Expansion Increase in home buying (low interest rates) Low commodity prices Threats Potential increase in price of raw materials (wood, steel) Higher competition from large retailers Increased restrictions on trade Economic Slowdown

Risks  Loss of market share to larger retailers  Product liability if personal injury occurs  Effect of foreign political issues on imported goods (suppliers)  Government quotas/tariffs  Dollar appreciation  Changes in commodity prices (wood) Source: Flexsteel Industries, Inc. Form 10-K. June 30, United States Security and Exchange Commission.

Industry Overview  Global Supply Chain  Heavy reliance on offshore suppliers  Very Competitive  Design patents are NOT common  Cyclical Industry  Low Market Dominance  Many small manufacturers  Style, Quality, Price, Durability, Delivery  Minimal Product Differentiation  Product Saturation Source: Flexsteel Industries, Inc. Form 10-K. June 30, United States Security and Exchange Commission.

Technical Analysis Source: Bigcharts.com

Karel Czanderna  Became CEO July 2012  100% increase in stock price  Harvard Business School  B.A. Physics from Clarkson University  PHD Materials Science and Engineering from Cornell University  President of Building Materials Division of Owens Corning Company  VP and General Manager of Portrait Photography Business at Eastman Kodak  Helped renovate technology to create new industry standard  VP of Cooking Products and Outdoor Kitchens at Whirlpool  Responsible for KitchenAid, Maytag, and Whirlpool branded appliances  Largest all-kitchen product launch in history of major appliance industry Source: Bloomberg

Stock Market Prospects  50 New Galleries and 2 New Large Distribution Centers  No Debt  Modernizing Business Systems to Improve Efficiency  Aiming to be a one stop shop for furnishings to help customers cut out suppliers  Petrovsky Score  Long Term Focus Earnings Transcript Q1 2016

Financial Analysis

Income Statement Projections

Discount rate

DCF

Comparable Company Analysis

Industry Comparable Stats Source: Morningstar

Thesis  Attractive Growth Prospects  Low Interest Rates  2 New Distribution Centers  Graham Implied Growth Rate  Strong Growth, Profitability, and Returns (ROE, ROIC, ROA)  Mispriced by Market  Long Term Outlook  Management focuses on growth and efficiency not hitting quarterly numbers  No Debt  3 Competitors with no debt also have below average comps across the board  Low Analyst Coverage  Only two analysts asked questions on their earnings call  Huge Discount to Peers

Recommendation Valuation ◦DCF: $43.57 (50%) ◦Comparable Company Analysis: $69.58 (50%) ◦Current Price: $44.39 ◦Price Target: $56.58 Recommendation: Buy 500 Shares Flexsteel Industries Inc. (FLXS) Market Price