On our website www.flexsteel.com, we'll start with a quick company overview. Flexsteel was founded in the late 1800s and is one of the top 10 furniture manufacturers in the U.S., employing over 1,700 team members. We have a diverse hy brid supply chain with roughly 50% of our sales manufactured in North America, by Flexsteel, and the other 50% supported by globally sourced product. Our four manufacturing sites and three distribution centers officially support all major U.S. markets and have ample capacity to support future growth without any major investments. In our current fiscal year, which ends this coming June 30th, we expect revenue in the range of $409 million-$413 million, which represents a healthy 4%-5% growth in` an industry that, frankly, has seen siza ble declin es, over the past, 12 or so months.
We believe our growth strategies are working and enabling us to gain share in this difficult environment. Give you a little bit of perspective on the business model from a product viewpoint, Flexsteel provides a full suite of solutions to address consumer needs in every major room in the home or apartment. That said, where we really excel is the primary living areas, such as a living room or a rec room, which accounts for roughly 85% of our estimated fiscal year 2024 sales. The big growth opportunity for us as a company from a product viewpoint is expanding into and further penetrating other areas of the home, like the bedroom, dining, storage, outdoor, and health and wellness, where we believe we're advantaged and have a right to win. From a go-to-market viewpoint, we currently have three primary brands.
First, Flexsteel, a premium price solution known for quality, durability, and our proprietary Blue Steel Spring. Second, our newest brand, Charisma, which is designed to serve customers, especially younger consumers seeking good quality, stylish furniture at affordable price points. Our third brand, Homestyles, is a value-oriented solution, which is sold primarily through e-commerce channels. In addition to these three primary brands, we also launched two new sub-brands in the past year. One is Flex, our small parcel contemporary modular furniture solution. It's built to flex with people's ever-changing lives. And the second sub-brand is Zecliner. Our sleep solutions recliner specifically designed for the 7% of U.S. adults who cannot regularly sleep in their beds at night. This multi-branded approach allows us to tailor solutions to specific consumer needs and effectively win in multiple market segments. As I noted, consumer demographics are obviously changing with generational shifts.
So we are expanding and repositioning our brand portfolio, which I just described, to meet these changing consumer needs. We're extending the Flexsteel brand into more modern styles and lower price points to appeal to younger consumers. We also launched both Flex and Charisma in the past year or so to address needs of younger generations. We continue to invest in Homestyles as a good quality, value-oriented solution, notably in storage solutions. In the future, we also envision adding a mid-price modern lifestyle brand to our portfolio either through internal development or a potential acquisition. Turning to our customer base. The breadth of our omnichannel national distribution is what I believe is one of our greatest strengths. A good majority of our sales today go through independent furniture retailers, of which we do business with almost 1,400.
This channel is vital importance, and we are competing well, gaining share, and aligning with the right partners for long-term growth. Our growth opportunity here is to expand beyond the independent retail furniture channel. We have longstanding relationships with top retailers like Amazon and Wayfair through our Homestyles brand, and we are now leveraging those relationships to sell our other brands, like Flexsteel, Flex, and Charisma. In the past year, we've also developed strong partnerships with Costco and the TJX Companies. We are growing profitably with these customers. Lastly, we are experimenting with our own direct-to-consumer sites. While this is expected to remain a small portion of our sales near term, these sites do complement our core selling channels while we build new direct-to-consumer capabilities for long-term growth. Next, we believe our supply chain is a clear competitive advantage due to both scale efficiencies, agility, and competitive costs.
Our manufacturing production currently comes from our three plants in Juarez, Mexico. We also have a facility in Mexicali, which is currently not in use, but fully subleased and is available mid to long term to support our future growth. Our three distribution center network is complemented by multiple trailer transfer points to efficiently serve all primary and secondary U.S. markets. We have a full breadth of fulfillment options from full truckload to direct-to-consumer that can serve a wide range of changing consumer and customer needs. From a global sourcing perspective, our North American operation is complemented by a very strong and diverse global supply chain. We have offices and good talent in four countries in Asia to support our global sourcing operation. We are aligned with the strongest and most capable suppliers in the industry. We're committed to supporting our growth.
We continue to expand and diversify our supply base in other parts of the world to become even stronger and more resilient. Flexsteel differentiates itself by providing superior value through compelling designs with unmatched quality, comfort, and durability. The source of that differentiation is derived from innovation. Like our patented Blue Steel Spring. We, as a company, are committed to driving new innovation that is relevant to consumer needs as a key source of future growth. Give you an example of recent innovation. Our new modular Flex line is supported by patented quick assembly, no tools required connection system. A stain-resistant and sustainable fabric and a unique set of hubs and accessories that truly flex with consumers' ever-changing needs. These are the types of innovation that are positioning our modular solution at a lower cost.
With faster assembly, superior comfort, and greater functionality compared to the leading competitor in the space. Another recent innovation investment is our Zecliner. The sleep solutions recliner, which, as I noted earlier, addresses the unmet needs of roughly 7% of the U.S. adults who aren't able to sleep consistently in their beds every night due to a variety of reasons: sleep apnea, acid reflux, snoring, etc. These individuals sleep in the recliners or sofas every night, which aren't never built for sleep. So in contrast, Zecliner was designed specifically to comfortably sleep in for plus eight hours a night. And it uses a unique combination of technology and material innovation to achieve these superior results, as validated by an independent sl eep study. We're going to continue to pursue new innovations like Flex, like Zecliner, to further differentiate Flexsteel and provide superior value to the market.
Well, now I'll turn it over to Mike.
Thanks, Derek. I'll jump into the investment thesis. There are really five components to the thesis. First, a compelling long-term industry outlook. Second, promising growth prospects for Flexsteel, including market expansion. Third, sizable margin expansion potential. Fourth, strong cash flow generation. And fifth, disciplined capital allocation. I'll quickly touch on each of these points. While industry conditions near term remain challenged, largely due to a shift of consumer spending towards experiences and away from things. From a longer term view, we're bullish on the prospects for industry growth due to three factors. First, we expect that the significant demographic change and purchasing power shifts to Millennials and Gen Zs will drive substantial churn and demand for furniture well into the future. Second, the domestic state-to-state migration that accelerated during the pandemic is expected to continue due to broad adoption of remote working.
When people move, it creates a furniture purchase event. Similarly, housing production has not kept pace with population growth and new household formation. So strong demand for new housing will remain robust for many years, which will also drive demand for new furniture. While we expect the industry to grow long term, we're even more excited about the opportunities for Flexsteel to gain share and penetrate into new markets. At a high level, our growth priorities are threefold. First, we intend to continue to gain share in the core markets where we compete today by leveraging and strengthening our market leadership, aligning ourselves with the strongest distribution partners, and continually developing fresh, on-trend, and compelling new products. Second, as Derek highlighted in his overview, we have multiple pathways to expand into new markets. We're transforming our brand portfolio to reach younger consumers.
We're rapidly expanding our sales distribution in big box and leading retailers. We intend to grow in major product categories where we are under-penetrated today. At the same time, we're investing in key capabilities such as consumer research, innovation, marketing, and brand awareness. All to accelerate growth in both core and new markets. Confidence in gaining share and expanding our markets stems from our current performance. From a top line perspective, we're winning in a difficult environment. Because of the growth strategies I just outlined. As illustrated on the left-hand chart, home furnishings retail sales have been down year-over-year for 14 consecutive months. As shown on the right-hand chart, despite these challenging conditions, which we expect to continue near-term. We delivered 7.5% growth in our second quarter, which ended in December. And 8.2% growth in our third quarter, which ended March 31, 2024.
We forecast growth to continue for the remainder of fiscal 2024 and into fiscal 2025. We're equally as encouraged about our margin expansion potential of the business. We expect operating margin in fiscal 2024 to double from the prior year and continue to expand into fiscal 2025. There are three margin improvement drivers. First, we have strong leaders over manufacturing, logistics, and global sourcing. Their teams are executing well and driving sizable savings that we feel is sustainable. Second, we've raised the margin hurdle rate for new products above our current portfolio average. As new products make up a larger and larger portion of our overall sales, we expect company margins to improve. Lastly, we expect to realize operating leverage as we grow sales. As we have the capacity and resources to support growth without significant investment and additive costs. Touch on cash flow generation.
The other attractive aspect of our business is that capital requirements are relatively low. For example, annual CapEx runs roughly 1% of sales. Do we expect to generate strong free cash flow now and in the future to either reinvest for growth, including acquisitions, or return capital to shareholders through both dividends and share buybacks? We have a demonstrated history of disciplined capital allocation. Over the past four years, we've returned almost $87 million to shareholders. As we think about capital allocation priorities, in the near term, we're focused on reducing debt and being debt-free in the next three to six months. Longer term, we expect to reinvest up to 70% of operating cash back into the business to accelerate growth. But only if we have confidence of delivering an ROI above our cost of capital.
Otherwise, we'll continue to return capital to shareholders in a similar manner as we've done over the past four years. Looking longer term, we feel confident in our strategies and our ability to grow. Increased scale leverage, continued cost savings, and disciplined product portfolio management are the key levers to continue to improve profitability and generate strong cash flow. The future of Flexsteel is exciting. And we've got positive momentum right now and an aggressive agenda of sales and profit growth. Backed by an experienced leadership team committed to winning. In closing, we appreciate your time. And with that, we'll open it up to questions.
Thanks very much, Derek and Mike, for the terrific overview. As a quick reminder for those in the audience, if you do have a question, you know, please type that in into the Q&A box, and I'll get started with that. So, you know, first, I guess, you know, maybe just to kind of put things i.e. summarize things. So obviously, your recent results, your guidance are certainly better than your peers. No question you guys are the outlier in this kind of depressed state of the industry right now. So I guess if you could just maybe, you know, kind of summarize the kind of like the main factors, what do you attribute that to and your confidence level kind of going forward with those things?
Yeah, great, great question, Anthony. So I think what I largely attribute it to is we've made investments over the last 18, 24 months. Around innovation, around new product development. That are all, I think, paying dividends now. And we're starting to see, you know, our outperformance as a result. The way we think about our business, you could really bifurcate it. Into, you know, what I described, what we describe here as core business. Hey, that's at 85% that's in the living room. 85% roughly that goes through independent kind of retail. We are modestly growing and outcompeting, gaining share in our core business. And I think it's due to number one, a significant investment in new product development. That has resonated really well. It is driving new forms of innovation within our core business.
And I think it's aligning with what we believe are the strongest, most capable retail partners for the long term. And we're building a differentiated service model to become their preferred partner. So I think those are the growth drivers both near term and longer term in our core business. And then we also talked about, you know, our different avenues to penetrate expanding markets. So younger consumers, it's Flex and its Charisma. Product categories. Again, we launched Zecliner for health and wellness. We had a very substantial launch in case goods here. This past April Market to further penetrate bedroom and dining. And I think, you know, as we think about expanding our sales distribution, we're doing that through multiple forms. We talked about Costco, we talked about kind of TJX. We're expanding, you know, the Flexsteel brand.
Through retail, you'll find a plethora of Flexsteel products kind of on Wayfair that didn't exist there 12, 18 months ago. So I think it's a combination of continuing to do the right things in our core business, gain share there. At the same time, continuing to pursue these these expanded markets. Which is incremental growth above and beyond kind of the core.
Terrific. Okay. So, and just to follow up in regards to some of those points, yeah, we do have some questions here coming in here. So as far as, you know, on the innovation side, I mean, can you talk maybe like, you know, what percentage of your, you know, sales come from new products and what innovations do you have planned in the future to stay ahead of your target market, stay ahead and try to stay ahead of the competition? You probably don't want to share too much of the secret sauce, but maybe just kind of generally speaking, maybe you could you could talk about that.
Yeah, I think in terms of new products are really critical. Our goal is for at least 30% of our sales in any given timeframe to be from new products that have been launched over the last three years. If you took a snapshot today, almost 40% of our current sales come from that definition of new products. So hugely important. Certainly to our current growth and kind of future growth. So again, we're constantly pushing ourselves. How do we bring better value to our customers and consumers through new products? In terms of innovation, innovation is a foundational pillar to how we differentiate and compete going forward. While I can't share specific innovations that we're working on, I can talk more broadly around how we've invested here recently to pursue innovation in a bigger way. And there's really three things that I'll cite.
One is we've developed a center of excellence in North Carolina around product development and engineering. We're building, you know, staff and talent and capabilities around that here domestically. And feel really good about where that team's at and the results that they're producing. Second big investment is around capabilities kind of on our Asia team. Specifically around technology and software. So so again, I won't tell you what specific types of innovations we're working on. But again, we're making relatively meaningful investments to make sure again from a technical standpoint, technology and a software perspective, we can differentiate ourselves on that end. And I think the third big important around innovation is consumer research. So similarly, I mean, we discovered for Zecliner, 7% of U.S. adults can't sleep in their bed regularly. That came through consumer research.
And so we're strengthening and increasing consumer research to continue to find those opportunities where there's either an unmet consumer need or underserved consumer need. So that we can then drive innovations around, you know, coming up with differentiated solutions. So those are the three investment areas again give you a sense of how important innovation is to us. And how we're putting, you know, money behind it and resources.
Gotcha. Okay. That's perfect. Okay. And then, you know, in terms of just e-commerce, so I know you you said that relatively small percentage of your revenue comes from your own direct to consumer, but you do sell to other retailers like Wayfair and, you know, HomeDepot.com and Costco.com and so some others. So I guess, you know, first maybe, you know, if you could just maybe be a little bit more specific as far as the I know you had a slide earlier, maybe if you could just we have a question here about that, maybe just give specific numbers around e-commerce and then kind of longer term as you talked about serving more younger consumers, how do you see the business sales channels shifting over the next few years? Obviously, independent retailers are still the lion's share of your business now, but how do you see that evolving?
Maybe just how is the margin profile for those other sales channels?
So in terms of kind of, I mean, retailer or online overall, again, you've got to—you've got to aggregate. Hey, it's the Amazon's, it's the Wayfair's, it's the Costco.com, etc. Generally, that's roughly around 15% of our current sales, kind of 15%-20% depending on kind of the month or quarter. So still meaningful. And to answer your question around, hey, you know, how's that changing? The reality is if we're going after younger consumers, they have a stronger preference to use that as a shopping channel than, say, you know, Baby Boomers or Gen Xers. And I'll give you an example. So Flex is a solution that was targeted towards younger consumers. The vast majority, 90%+ of where Flex is sold is online.
So not only do we have a product that meets younger consumers, but it's being sold through the channels that, again, they prefer. You know, I mentioned in my last comment, you go back, you know, 18, 24 months ago, you wouldn't have found any Flexsteel branded product on Wayfair. You search Wayfair now, you'll find a myriad of different product solutions. So I think retail, including direct to consumer, is going to continue to be a very important part of our business model because the consumer that's growing in affluence, you know, has a preference towards that buying model.
Gotcha. Okay. Got it. And then, you know, certainly you've given already guidance for the rest of this fiscal year and for fiscal 2025. You know, certainly, I guess, you know, the question here is, you know, can you, you know, as far as your ability to continue to outpace the market by such a, you know, wide margin, I know, you know, as far as I'll try to tie in 2 questions in 1 here. So I guess, you know, you're able to, you know, certainly, you know, outperform in a depressed housing market. So I guess, you know, in an environment where, let's say, you know, interest rates were lower, the housing market would be in better shape. You know, how much more could you you think you do in terms of your your sales and profit?
You know, maybe, you know, like, you know, if the housing market was better, like, you know, how much better would you guys be doing? You know, you know, I don't know if that's an easy, you know, question to answer, but, you know, would love to get your thoughts on that.
Yeah, I think we won't give you a specific answer. But if you just think in relative terms, how we're performing now, and you can look at the industry, right? I mean, the U.S. Census publishes home furnishing retail sales every single month. And if you go back, you can see it's been down 8%-10% for the last 14 months. You can see all of our publicly traded kind of peers, how they're performing. So what I would argue, if you look at the relative outperformance, right? Flexsteel versus the industry, I mean, we believe that we can continue, you know, to that outperformance. So what I would tell an investor is, what do you believe the industry is capable of in the next year, 2 years, 3 years?
And whatever that industry growth is, we believe we can do, you know, 1.5, maybe 2x that kind of going forward, given all of our sales growth initiatives.
Okay. Gotcha. Okay. And then switching gears to your distribution and, you know, just, you know, warehousing model. So you had a slide there earlier. Can you talk about that? How that's played to your success here as of late? You also have a facility in Mexicali that's idle now. So as business ramps up, you know, how quickly can you turn that on in terms of, you know, just being able to drive, you know, higher, you know, production and higher efficiencies?
Yeah. Yeah. In terms of the distribution, I mean, generally we've got three distribution centers in the U.S. Right now they're at 60%-70% kind of capacity. We believe that our inventory levels are healthy. We can continue to grow without substantial investment inventory. So we believe our current DC model is more than adequate to support our future growth. Similarly, on the manufacturing front, we probably have, Mike, 20%-25% capacity to grow within our existing Mexico's manufacturing footprint. And then beyond that, we do have Mexicali as a strategic option to utilize if our Mexico's facilities are full. So again, I go back to we've got ample capacity, both manufacturing and DCs, to continue to grow without any major capital investment over the midterm.
Gotcha. Okay. And then, so I know you're focusing on debt reduction here in your term as you achieve that and are able to build up cash. You guys have talked about potentially maybe doing some acquisitions down the road in the future. So what would be the main criteria that you would be looking at in terms of potential deals?
Yeah, there's really three criteria. Number one is there a clear path to shareholder value creation? Again, while we've certainly expressed that we're acquisitive and we want to look at deals, first and foremost, it's got to have a practice of cash on cash return. The second criteria is does it accelerate our strategies? So if you think about what we articulated earlier, we want to penetrate, you know, other product categories. We want to pursue and be relevant to younger consumers. We want to expand our sales distribution. So again, an acquisition has to meaningfully move the ball on one of those three growth strategies. And I think the third criteria is, and it kind of goes along with the value creation potential, but are there meaningful synergies? Is there capability that we want to long term develop within Flexsteel that we can acquire?
Similarly, was an acquisition target, you know, wanting something that they lack that Flexsteel has? I think, you know, the benefit that we could bring, especially to a smaller acquisition, is the scale of our manufacturing DC network as well as our global sourcing capabilities.
Understood. Okay. All right. Well, we're pretty much out of time at this point here. Again, thank you, Derek and Mike, for sharing the Flexsteel story. Thank you, everyone, also listening in and asking questions as well. So we'll wrap it up here and everyone have a great day. Thanks again.
All right. Thanks, Anthony. Thank you.
Thank you.