Flexsteel Industries, Inc. Anthony Sorrentino Ning wang Presented November 1, 2016 Real Client Managed Portfolio

Real Client Managed Portfolio Agenda Current Holding and Company Profile Business Overview Industry Overview Macroeconomic Overview and Drivers Financial Analysis Competitors Valuation Recommendation Tony Real Client Managed Portfolio

Current Holding and Company Profile Historical Transactions and Valuations 2/25/2016 - Bought 300 at $ 40.91 Current Price $41.90 Realized Return 3/16/16 Dividend Paid $0.18 6/22/16 Dividend Paid $0.18 9/21/16 Dividend Paid $0.20 Total: $0.56/$40.91 = 1.32% (HPR) Unrealized Return Price Appreciation: $41.90/$40.91-1 = 2.42% (HPR) 52 Week Range: 36.06 - 54.25 Market Cap: $322.68 million Dividend Yield: 1.97% ($0.80) paid since incorporation P/E: 14.02 Source: Yahoo! Finance Real Client Managed Portfolio

Real Client Managed Portfolio Business Overview Founded in 1901, incorporated in 1929 Manufactures, imports and sells residential and commercial furniture products in the United States Sells to 50 countries around the globe and is carried by more than 1,200 retailers Core Competencies include design and production of furniture for residential and commercial applications Differentiation strategy aimed with the objective of selling higher priced, quality, made in USA furniture Source: Official 10-K, Flexsteel.com Real Client Managed Portfolio

Real Client Managed Portfolio SWOT Analysis Strengths Design and production No debt on balance sheet Sophisticated logistics network Weaknesses Limited pricing power No security of product design Opportunities New design and innovation International expansion Online sales growth Threats Macroeconomic uncertainty Technologically advanced furniture Competition from large retailers Restrictions on trade Changes in commodity prices Real Client Managed Portfolio

Real Client Managed Portfolio Industry Overview Household Furniture Manufacturing industry is cyclical Intensifying competition from imports which are expected to rise to cover 54.3% of domestic demand over the next 5 years Revenue $25 Billion Annual Growth 11-16 1% Annual Growth 16-21 0.2% Profit $1.2 Billion Exports $2.4 Billion Businesses 9,593 Source: IBISWorld.com Real Client Managed Portfolio

Porters Five Forces Analysis Threat of New Entrants (MODERATE) Power of Buyers (HIGH) Power of Suppliers (LOW) Threat of Substitutes (LOW) Existing Rivalry (HIGH) Medium capital requirements Economies of scale Low pricing power Minimal product differentiation Low switching costs Low product differentiation Undifferentiated products Mostly raw materials Many suppliers No substitutes for furniture Source: IBISWorld.com Real Client Managed Portfolio

Macroeconomic Overview and Drivers Source: IBISWorld.com Real Client Managed Portfolio

Macroeconomic Overview and Drivers Source: United States Census Bureau Real Client Managed Portfolio

Real Client Managed Portfolio Financial Analysis Real Client Managed Portfolio

Real Client Managed Portfolio DuPont Analysis Real Client Managed Portfolio

Comparable Analysis- Competitors Comparable Companies Ticker Stock Price Market Cap. (million) Description Hooker Furniture Corp. HOFT $ 26.6 306.9 Operates as a home furnishing marketing, design, and logistics company worldwide. The company designs, manufactures, imports, and markets residential household furniture products. It operates through three segments: Case goods, Upholstered, and All Others. Bassett Furniture Industries, Inc. BSET $ 24.22 261.6 Engages in the manufacturing, importing, and retailing of home furnishings in the United States. The company operates in three segments: Wholesale, Retail, and Logistical Services. Kimball International, Inc. KBAL $ 12.77 481.7 Manufactures and sells furniture products in the United States and internationally. It offers furniture solutions, and accessories for office and open work space areas. The company markets and sells its products through sales representatives to end users, office furniture dealers, wholesalers, designers, and catalog houses. La-Z-Boy Inc. LZB $ 25.17 1237.6 Manufactures, markets, imports, exports, distributes, and retails upholstery furniture products in the United States and internationally. It operates through Upholstery, Case goods, and Retail segments Source: CapIQ Real Client Managed Portfolio

Comparable Analysis- Competitors Real Client Managed Portfolio

Comparable Analysis- Valuation Implied Price: $45 Source: CapIQ Real Client Managed Portfolio

Historical Revenue Growth Cyclical trend 5-8 years a cycle Stable trend Stays between 20% to 25% Source: CapIQ Real Client Managed Portfolio

DCF Valuation - Assumptions Source: Official 10-K Real Client Managed Portfolio

Real Client Managed Portfolio DCF Valuation Implied Price: $38 Real Client Managed Portfolio

DCF Valuation – Sensitivity Analysis Target Price Range : ($32 , $46) Real Client Managed Portfolio

Real Client Managed Portfolio Technical Analysis Source: Yahoo! Finance Real Client Managed Portfolio

Recommendation Sell 300 Shares Limit $40 Comparable Valuation Overvalued Growth possibilities Macroeconomic uncertainty Comparable Valuation $ 45 DCF Valuation $ 38 Current Price $ 41.9 Real Client Managed Portfolio