Part I – Financial Information [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Flexsteel's unaudited consolidated financial statements and detailed notes for the period [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) | Metric (in thousands) | September 30, 2025 | June 30, 2025 | | :-------------------- | :----------------- | :------------ | | Cash and cash equivalents | $38,585 | $40,006 | | Total current assets | $175,367 | $172,372 | | Total assets | $281,474 | $282,486 | | Total current liabilities | $58,506 | $62,014 | | Total liabilities | $109,290 | $114,624 | | Total shareholders' equity | $172,184 | $167,862 | - Total assets decreased slightly from **$282.5 million** to **$281.5 million**, while total liabilities decreased from **$114.6 million** to **$109.3 million**, leading to an increase in total shareholders' equity from **$167.9 million** to **$172.2 million**[8](index=8&type=chunk) [Consolidated Statements of Income and Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) | Metric (in thousands, except per share data) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :------------------------------------------- | :------------------------------ | :------------------------------ | | Net sales | $110,439 | $104,007 | | Gross profit | $25,946 | $22,367 | | Operating income | $8,987 | $6,047 | | Net income and comprehensive income | $7,327 | $4,140 | | Basic EPS | $1.38 | $0.80 | | Diluted EPS | $1.31 | $0.74 | - Net sales increased by **6.2%** year-over-year, from **$104.0 million** to **$110.4 million**. Net income significantly increased by **77%** from **$4.1 million** to **$7.3 million**, and diluted EPS rose from **$0.74** to **$1.31**[9](index=9&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) | Item (in thousands) | Three Months Ended Sep 30, 2025 | | :------------------ | :------------------------------ | | Balance on June 30, 2025 | $167,862 | | Stock-based compensation | $1,117 | | Vesting of restricted stock units | $(1,931) | | Stock options exercised, net | $30 | | Treasury stock purchases | $(1,130) | | Cash dividends declared | $(1,091) | | Net income | $7,327 | | Balance on September 30, 2025 | $172,184 | - Shareholders' equity increased from **$167.9 million** at June 30, 2025, to **$172.2 million** at September 30, 2025, primarily driven by net income of **$7.3 million**, partially offset by treasury stock purchases and cash dividends[11](index=11&type=chunk) [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :-------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $4,114 | $2,398 | | Net cash (used in) provided by investing activities | $(1,357) | $728 | | Net cash (used in) financing activities | $(4,178) | $(2,147) | | (Decrease) increase in cash and cash equivalents | $(1,421) | $979 | | Cash and cash equivalents at end of the period | $38,585 | $5,740 | - Net cash provided by operating activities increased to **$4.1 million** in Q1 2026 from **$2.4 million** in Q1 2025. However, net cash used in financing activities increased significantly to **$4.2 million**, primarily due to shares withheld for tax payments, dividends paid, and treasury stock purchases[13](index=13&type=chunk) [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Basis of Presentation and Description of Business](index=7&type=section&id=1.%20Basis%20of%20Presentation%20and%20Description%20of%20Business) - Flexsteel Industries, Inc. is a leading manufacturer, importer, and marketer of furniture products in the United States, distributing through e-commerce and direct sales. The unaudited financial statements are prepared in accordance with SEC rules and GAAP, with certain disclosures condensed or omitted[16](index=16&type=chunk)[17](index=17&type=chunk) [2. Inventories](index=7&type=section&id=2.%20Inventories) | Inventory Category (in thousands) | September 30, 2025 | June 30, 2025 | | :-------------------------------- | :----------------- | :------------ | | Raw materials | $9,850 | $11,114 | | Work in process and finished parts | $2,512 | $2,632 | | Finished goods | $74,610 | $75,389 | | Total | $86,972 | $89,135 | - Total inventories decreased from **$89.1 million** at June 30, 2025, to **$87.0 million** at September 30, 2025, primarily due to a reduction in raw materials and finished goods[18](index=18&type=chunk) [3. Leases](index=7&type=section&id=3.%20Leases) - The Company accounts for leases under ASU 842, recognizing right-of-use assets and lease liabilities on the balance sheet. Lease expenses for the three months ended September 30, 2025, totaled **$2.5 million**, down from **$3.0 million** in the prior year[19](index=19&type=chunk)[22](index=22&type=chunk) | Lease Metric (in thousands) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :-------------------------- | :------------------------------ | :------------------------------ | | Operating lease expense | $2,098 | $2,478 | | Variable lease expense | $413 | $519 | | Total lease expense | $2,511 | $2,997 | | Operating cash flows paid for operating leases | $2,493 | $2,441 | | Weighted-average remaining lease term (years) | 6.9 | 7.9 | | Weighted-average discount rate | 3.9% | 3.1% | [4. Credit Arrangements](index=9&type=section&id=4.%20Credit%20Arrangements) - Flexsteel has a Credit Agreement with Wells Fargo Bank, initially providing an **$85 million** revolving line of credit, secured by substantially all assets. The agreement was amended to transition interest rates from LIBOR to SOFR (effective rate **5.52%** as of Sep 30, 2025) and, on June 3, 2025, the maximum revolving line of credit was reduced to **$55 million** to align with borrowing availability[23](index=23&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - As of September 30, 2025, there were no outstanding borrowings under the Credit Agreement, excluding **$0.9 million** in letters of credit, and the Company was in compliance with all covenants[23](index=23&type=chunk)[27](index=27&type=chunk) [5. Income Taxes](index=11&type=section&id=5.%20Income%20Taxes) | Metric | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :----- | :------------------------------ | :------------------------------ | | Effective Tax Rate | 21.9% | 31.0% | - The effective tax rate decreased to **21.9%** for the three months ended September 30, 2025, from **31.0%** in the prior year, primarily due to a lesser impact of taxes on foreign operations, a benefit from uncertain tax positions, and a larger research and development credit[28](index=28&type=chunk) - New tax legislation (OBBBA) enacted on July 4, 2025, is not expected to materially impact income tax expense for fiscal 2026, despite provisions for expensing R&D and reestablishing bonus depreciation[29](index=29&type=chunk) [6. Stock-Based Compensation](index=11&type=section&id=6.%20Stock-Based%20Compensation) - Stock-based compensation expense for the three months ended September 30, 2025, was **$1.1 million**, slightly down from **$1.1 million** in the prior year[32](index=32&type=chunk) - The 2022 Equity Incentive Plan replaced prior plans, granting awards like RSUs and PSUs to employees and directors. Unrecognized stock-based compensation related to unvested PSUs and RSUs was **$4.3 million** as of September 30, 2025, expected to be recognized over **1.6 years**[33](index=33&type=chunk)[35](index=35&type=chunk) | Stock Option Activity (in thousands) | Shares | | :----------------------------------- | :----- | | Outstanding at June 30, 2025 | 66 | | Exercised | (1) | | Cancelled | (2) | | Outstanding at September 30, 2025 | 63 | [7. Earnings Per Share](index=13&type=section&id=7.%20Earnings%20Per%20Share) | EPS Metric (in thousands) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :------------------------ | :------------------------------ | :------------------------------ | | Basic shares | 5,307 | 5,203 | | Diluted shares | 5,598 | 5,576 | | Anti-dilutive shares | 6 | 9 | | Cash dividends declared per common share | $0.20 | $0.17 | - Basic EPS increased to **$1.38** from **$0.80**, and diluted EPS increased to **$1.31** from **$0.74** year-over-year. Cash dividends declared per common share increased from **$0.17** to **$0.20**[9](index=9&type=chunk)[41](index=41&type=chunk) [8. Segment Information](index=15&type=section&id=8.%20Segment%20Information) - The Company operates as a single operating and reportable segment, with its President and CEO serving as the chief operating decision maker (CODM). Performance is measured using operating income and net income[42](index=42&type=chunk)[43](index=43&type=chunk) | Long-Lived Assets (in millions) | September 30, 2025 | June 30, 2025 | | :------------------------------ | :----------------- | :------------ | | United States | $42.1 | $42.4 | | Mexico | $34.7 | $35.4 | [9. Commitments and Contingencies](index=15&type=section&id=9.%20Commitments%20and%20Contingencies) - The Company is subject to various legal proceedings but does not consider any currently pending matters to be material to its business, operating results, financial condition, or cash flows[45](index=45&type=chunk) [10. Recent Accounting Pronouncements](index=15&type=section&id=10.%20Recent%20Accounting%20Pronouncements) - The FASB issued ASU 2024-03 (Expense Disaggregation Disclosures) and ASU 2023-09 (Improvements to Income Tax Disclosures). The Company is evaluating the disclosure impacts of these ASUs but does not expect a material impact on its financial position or results of operations[46](index=46&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Company's financial condition, operational results, liquidity, and capital resources for the quarter [General](index=16&type=section&id=General) - This section should be read in conjunction with the Consolidated Financial Statements and related notes[47](index=47&type=chunk) [Critical Accounting Policies](index=16&type=section&id=Critical%20Accounting%20Policies) - There have been no material changes to the Company's critical accounting policies and estimates since the 2025 annual report on Form 10-K[48](index=48&type=chunk) [Overview](index=16&type=section&id=Overview) | Metric (% of Net Sales) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :---------------------- | :------------------------------ | :------------------------------ | | Net sales | 100.0% | 100.0% | | Cost of goods sold | 76.5% | 78.5% | | Gross margin | 23.5% | 21.5% | | Selling, general and administrative expenses | 15.4% | 15.7% | | Operating income | 8.1% | 5.8% | | Income before income taxes | 8.5% | 5.8% | | Net income and comprehensive income | 6.6% | 4.0% | - The Company improved its gross margin by **200 basis points** to **23.5%** and increased operating income as a percentage of net sales to **8.1%** from **5.8%** year-over-year[50](index=50&type=chunk) [Results of Operations for the Quarter Ended September 30, 2025 vs. 2024](index=16&type=section&id=Results%20of%20Operations%20for%20the%20Quarter%20Ended%20September%2030%2C%202025%20vs.%202024) - Net sales increased by **6.2%** to **$110.4 million**, driven by sourced soft seating products, partially offset by lower unit volume in made-to-order soft seating and homestyles ready-to-assemble categories[51](index=51&type=chunk) - Gross margin improved by **200 basis points** to **23.5%**, primarily due to sales leverage and favorable foreign currency translation in Mexico[53](index=53&type=chunk) - Net income rose to **$7.3 million** (**$1.31** diluted EPS) from **$4.1 million** (**$0.74** diluted EPS) in the prior year quarter[56](index=56&type=chunk) [Liquidity and Capital Resources](index=17&type=section&id=Liquidity%20and%20Capital%20Resources) - Working capital increased by **$6.5 million** to **$116.9 million** as of September 30, 2025, driven by an increase in other current assets and decreases in payroll and other current liabilities, partially offset by increased accounts payable and decreased inventory and cash[57](index=57&type=chunk) | Cash Flow Summary (in thousands) | Three Months Ended Sep 30, 2025 | Three Months Ended Sep 30, 2024 | | :------------------------------- | :------------------------------ | :------------------------------ | | Net cash provided by operating activities | $4,114 | $2,398 | | Net cash (used in) provided by investing activities | $(1,357) | $728 | | Net cash (used in) financing activities | $(4,178) | $(2,147) | | (Decrease) increase in cash and cash equivalents | $(1,421) | $979 | - Net cash used in financing activities increased to **$4.2 million**, primarily due to **$1.9 million** for shares withheld for tax payments, **$1.1 million** for dividends paid, and **$1.1 million** for treasury stock purchases[62](index=62&type=chunk) [Line of Credit](index=17&type=section&id=Line%20of%20Credit) - The Company's credit agreement with Wells Fargo Bank, initially an **$85 million** revolving line of credit, was amended to reduce the maximum amount to **$55 million** on June 3, 2025, to better align with current and projected borrowing availability[64](index=64&type=chunk)[69](index=69&type=chunk) - Interest rates transitioned from LIBOR to SOFR, with an effective interest rate of **5.52%** as of September 30, 2025. No outstanding borrowings existed on the line of credit as of September 30, 2025, apart from **$0.9 million** in letters of credit[68](index=68&type=chunk)[70](index=70&type=chunk) [Contractual Obligations](index=19&type=section&id=Contractual%20Obligations) - There have been no material changes to the Company's contractual obligations since the Annual Report on Form 10-K for the year ended June 30, 2025[71](index=71&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=19&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the Company's market risk exposures, including foreign currency and interest rate risks [General](index=19&type=section&id=General) - Market risk involves changes in financial instrument values due to fluctuations in interest rates, foreign exchange rates, and equity prices. Management does not anticipate material fluctuations in results or cash flows from these factors[72](index=72&type=chunk) [Foreign Currency Risk](index=19&type=section&id=Foreign%20Currency%20Risk) - The Company has exposure to the Mexican Peso for purchases and operating expenses in Mexico, and for peso-denominated assets like VAT receivables. A negative shift in the U.S. dollar against the Peso could increase manufacturing costs or decrease asset values. The Company does not currently hedge this foreign currency risk[73](index=73&type=chunk) [Interest Rate Risk](index=19&type=section&id=Interest%20Rate%20Risk) - The Company's primary market risk exposure to financial instruments is interest rates. As of September 30, 2025, there were no outstanding borrowings on its line of credit, exclusive of fees and letters of credit, mitigating immediate interest rate risk[74](index=74&type=chunk) [Item 4. Controls and Procedures](index=19&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms disclosure controls effectiveness and reports no significant changes in internal control [Evaluation of disclosure controls and procedures](index=19&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2025[75](index=75&type=chunk) [Changes in internal control over financial reporting](index=21&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) - There were no significant changes in internal control over financial reporting during the quarter ended September 30, 2025, that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[76](index=76&type=chunk) Part II – Other Information [Cautionary Statement Relevant to Forward-Looking Information](index=21&type=section&id=Cautionary%20Statement%20Relevant%20to%20Forward-Looking%20Information%20for%20%22Safe%20Harbor%22%20Provisions%20of%20the%20Private%20Securities%20Litigation%20Reform%20Act%20of%201995) This cautionary statement addresses forward-looking information, outlining risks and disclaiming revision obligations - Forward-looking statements are subject to risks and uncertainties, including the cyclical nature of the furniture industry, supply chain disruptions, litigation, pricing pressures, raw material costs, foreign currency values, and general economic conditions[78](index=78&type=chunk) - The Company explicitly declines any obligation to publicly revise forward-looking statements to reflect future events or circumstances[79](index=79&type=chunk) [Item 1A. Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the Company's most recent Annual Report on Form 10-K - No material changes to the risk factors set forth in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2025[80](index=80&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=21&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's share repurchase program, including shares purchased and remaining authorized amounts - The Board of Directors approved a share repurchase program on December 11, 2024, authorizing the Company to purchase up to **$30 million** of its common stock[81](index=81&type=chunk) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Dollar Value of Shares That May Yet Be Purchased | | :-------------------------------- | :----------------------------- | :--------------------------- | :--------------------------------------------- | | Three months ended September 30, 2025 | 31,026 | $36.41 | $28,870,242 | [Item 5. Other Information](index=22&type=section&id=Item%205.%20Other%20Information) This section reports no changes to Rule 10b5-1 trading plans by directors or officers - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended September 30, 2025[83](index=83&type=chunk) [Item 6. Exhibits](index=22&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report on Form 10-Q - The exhibits include certifications from the CEO and CFO (**31.1**, **31.2**, **32**) and XBRL Instance Document (**101.INS**) and Taxonomy Extension Schema (**101.SCH**)[84](index=84&type=chunk) [Signatures](index=23&type=section&id=Signatures) This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming authorized submission - The report was signed by Michael J. Ressler, Chief Financial Officer (Principal Financial & Accounting Officer), on October 22, 2025[89](index=89&type=chunk)

Group 1 - The core investment strategy focuses on long-only investment, evaluating companies from an operational and buy-and-hold perspective [1] - The approach does not prioritize market-driven dynamics or future price action, instead emphasizing the long-term earnings potential of companies [1] - The majority of recommendations will be holds, indicating a cautious stance in a generally bullish market [1] Group 2 - The articles aim to provide valuable information for future investors while maintaining a healthy skepticism towards market optimism [1] - A very small fraction of companies are deemed suitable for a buy recommendation at any given time [1]

Financial Data and Key Metrics Changes - For Q1 2026, net sales were $110.4 million, a growth of 6.2% compared to $104 million in the prior year quarter, marking the eighth consecutive quarter of sales growth [20][21] - Operating margin was 8.1%, up 230 basis points from 5.8% in the prior year quarter, representing the tenth consecutive quarter of year-over-year adjusted operating margin improvement [5][21] - GAAP operating income was $9.0 million, exceeding the top end of the guidance range of 6.0% to 7.3% of sales [21][22] - The company ended the quarter with a cash balance of $38.6 million and no bank debt [22] Business Line Data and Key Metrics Changes - Sales growth was primarily driven by source soft seating products, partially offset by lower unit volume in made-to-order soft seating products and Home Styles branded ready-to-assemble category [20] - The current quarter included approximately $2.4 million in pricing from tariff surcharges [21] Market Data and Key Metrics Changes - Weekly consumer traffic and sales were described as uneven, with significant volatility observed during the quarter [27] - The weak housing market and shaky consumer confidence are expected to be headwinds for the industry in the near term [7][10] Company Strategy and Development Direction - The company is focused on growth strategies that include investments in consumer research, new product development, innovation, and marketing [5][12] - A total of 26 new product groups and 226 unique SKUs are being introduced, with a long-term goal of 30 to 40% of sales derived from new products [14][33] - The company is pursuing a multipronged response plan to mitigate tariff impacts, including increasing tariff surcharges and evaluating structural cost reduction opportunities [11][12] Management's Comments on Operating Environment and Future Outlook - The management expressed confidence in navigating the challenging environment while maintaining a focus on growth investments [24] - The new Section 232 tariffs are expected to have a dramatic impact on the business and the entire U.S. furniture industry, leading to broad price increases and potential demand declines [9][10] - Despite near-term challenges, management remains optimistic about long-term industry growth drivers and Flexsteel's position to gain market share [12][24] Other Important Information - The company is committed to growing its case goods business through its Statements sub-brand, which emphasizes quality, design, and durability [16] - Consumer insights are driving innovation and marketing strategies, enhancing the in-store brand experience [17][18] Q&A Session Summary Question: Can you provide more details on the uneven demand during the quarter? - Management noted that weekly store traffic and sales were volatile, with weak performance leading up to Labor Day followed by strong sales around the holiday [27][28] Question: What was the level of the tariff surcharges and their impact? - The company implemented an 8.5% surcharge for the previous 20% tariff, which increased to 15% in anticipation of the new 30% tariff [30] Question: What percentage of sales is targeted from new products? - The long-term goal is for 30 to 40% of sales to come from new products, with over 50% of Q1 sales derived from new products [33] Question: What are the dynamics regarding USMCA compliance and tariffs? - The new Section 232 tariffs do not exempt USMCA compliant products, which changes the previous dynamics [41] Question: How are competitors responding to tariff-related price increases? - Competitors are passing through tariff increases, with some implementing surcharges as high as 21% to 25% [42]

Financial Data and Key Metrics Changes - For Q1 2026, net sales were $110.4 million, a growth of 6.2% compared to $104 million in the prior year quarter, marking the eighth consecutive quarter of sales growth [20][21] - Operating margin was 8.1%, up 230 basis points from 5.8% in the prior year quarter, representing the tenth consecutive quarter of year-over-year adjusted operating margin improvement [5][21] - GAAP operating income was $9.0 million, exceeding the top end of the guidance range of 6.0%-7.3% of sales [22] Business Line Data and Key Metrics Changes - Sales growth was primarily driven by source soft seating products, partially offset by lower unit volume in made-to-order soft seating products and Home Styles branded ready-to-assemble category [20] - The current quarter included approximately $2.4 million in pricing from tariff surcharges [21] Market Data and Key Metrics Changes - Weekly consumer traffic and sales were uneven, with significant volatility observed during the quarter, particularly around Labor Day [27][28] - The company anticipates that the new Section 232 tariffs will lead to broad price increases for furniture in the U.S., dampening consumer demand and compressing industry margins [10][12] Company Strategy and Development Direction - The company is focused on growth strategies that include investments in consumer research, new product development, innovation, and marketing [5][12] - A total of 26 new product groups and 226 unique SKUs are being introduced, with a long-term goal of 30%-40% of sales derived from new products launched within the last three years [14][33] - The company is pursuing a multipronged response plan to mitigate tariff impacts, including increasing tariff surcharges and evaluating structural cost reduction opportunities [11][12] Management's Comments on Operating Environment and Future Outlook - The management expressed confidence in navigating the challenging environment while maintaining a focus on growth investments [24] - Despite near-term challenges from tariffs and macroeconomic conditions, the company remains optimistic about long-term industry growth drivers [12][24] Other Important Information - The company ended the quarter with a cash balance of $38.6 million and no bank debt, indicating a solid balance sheet [22] - The management has decided to pause on providing forward-looking guidance due to uncertainty regarding the impact of tariffs [23] Q&A Session Summary Question: Can you provide more details on the uneven demand during the quarter? - Management noted that weekly store traffic and sales were volatile, with weak performance leading up to Labor Day followed by strong sales around the holiday [27][28] Question: What was the level of the tariff surcharges and their impact? - The company implemented an 8.5% surcharge for the previous 20% tariff, which increased to 15% in anticipation of the new 30% tariff [30] Question: What percentage of sales does the company aim to derive from new products? - The long-term goal is for 30%-40% of sales to come from new products launched within the last three years, with current sales comprising over 50% from new products [33] Question: How does the company view the case goods business moving forward? - The case goods category has been more challenged, but the company is pleased with the quality of new products and believes it will be a critical growth driver [35] Question: What factors contributed to the lower tax rate this quarter? - The lower tax rate was influenced by changes in reserves for uncertain tax positions and higher R&D tax credits, with expectations for a slight increase in the tax rate for the remainder of the year [36]

Financial Data and Key Metrics Changes - For Q1 2026, net sales were $110.4 million, representing a 6.2% increase from $104 million in the prior year quarter, marking the eighth consecutive quarter of sales growth [20][4] - Operating margin improved to 8.1%, up 230 basis points from 5.8% in the prior year quarter, indicating consistent profit improvement [5][20] - GAAP operating income was $9.0 million, exceeding the top end of the guidance range of 6.0% to 7.3% of sales [20][21] Business Line Data and Key Metrics Changes - Sales growth was primarily driven by source soft seating products, while lower unit volume was noted in made-to-order soft seating products and Home Styles branded ready-to-assemble category [20] - The current quarter included approximately $2.4 million in pricing from tariff surcharges, indicating the impact of external cost pressures on sales [20] Market Data and Key Metrics Changes - Weekly consumer traffic and sales were described as volatile, with significant fluctuations observed around the Labor Day holiday [26][27] - The company noted that consumer sentiment remains fragile due to concerns about inflation and slowing employment growth, which could impact demand [6][7] Company Strategy and Development Direction - The company is focused on growth strategies that include investments in consumer research, new product development, and marketing to drive future sales increases [5][12] - A multipronged response plan is being pursued to mitigate the impact of new tariffs, including increased pricing and cost reduction initiatives [11][12] - The introduction of 26 new product groups and 226 unique SKUs is expected to drive growth, with a long-term goal of 30% to 40% of sales coming from new products [13][32] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism about long-term industry growth despite near-term challenges from tariffs and macroeconomic conditions [12][24] - The company is well-positioned to navigate the challenging environment with a solid balance sheet and healthy profitability [11][24] Other Important Information - The new Section 232 tariffs on imported timber and upholstered furniture are expected to have a significant impact on the company's business and the broader U.S. furniture industry [9][10] - The company ended the quarter with a cash balance of $38.6 million and no bank debt, indicating strong financial health [22] Q&A Session Summary Question: Can you provide more details on the uneven demand during the quarter? - Management noted that weekly store traffic and sales were volatile, with weak performance leading up to Labor Day followed by a strong week around the holiday, but demand dropped again afterward [26][27] Question: What is the level of the tariff surcharges and their impact on sales and gross margins? - The company implemented an 8.5% surcharge for the previous 20% tariff, which increased to 15% in anticipation of the new 30% tariff [30] Question: What percentage of sales does the company aim to derive from new products? - The long-term goal is for 30% to 40% of sales to come from new products, with over 50% of Q1 sales derived from new products launched within the last three years [32] Question: What are the dynamics regarding USMCA compliance and recent tariffs? - The new Section 232 tariffs do not exempt USMCA compliant products, which changes the previous dynamics of tariff exemptions [38] Question: How do the company's price increases compare to competitors? - Competitors are reportedly implementing price increases of 21% to 25%, while the company is increasing its surcharges to 15% [39]

Financial Data and Key Metrics Changes - For Q1 2026, net sales were $110.4 million, reflecting a 6.2% increase compared to $104 million in the prior year quarter, marking the eighth consecutive quarter of sales growth [23][24] - Operating margin improved to 8.1%, up from 5.8% in the prior year quarter, representing the tenth consecutive quarter of year-over-year adjusted operating margin improvement [6][24] - The current quarter included approximately $2.4 million in pricing from tariff surcharges [23] Business Line Data and Key Metrics Changes - Sales growth was primarily driven by Source soft seating products, while lower unit volume was noted in made-to-order soft seating products and HomeStyles branded ready-to-assemble category [23] - Sales order backlog at the end of the period was $66.7 million, relatively flat compared to the prior quarter [23] Market Data and Key Metrics Changes - Industry demand remains lackluster due to challenging macroeconomic conditions, with consumer traffic and sales being uneven during the recent quarter [5][8] - The new Section 232 tariffs on imported timber and upholstered furniture are expected to have a significant impact on Flexsteel's business and the broader furniture industry [9][10] Company Strategy and Development Direction - The company is focused on growth strategies that include consumer research, new product development, and innovation [5][12] - Flexsteel is introducing 26 new product groups and 226 unique SKUs, with a long-term goal of achieving 30% to 40% of sales from new products launched within the last three years [15][40] - The company is pursuing a multipronged response plan to mitigate tariff impacts, including increasing tariff surcharges and evaluating structural cost reduction opportunities [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term industry growth despite near-term challenges from tariffs and macroeconomic conditions [14][26] - The company is well-positioned to navigate the challenging environment with a solid balance sheet and healthy profitability [12][26] Other Important Information - The company ended the quarter with a cash balance of $38.6 million and no bank debt, indicating effective working capital management [25] - Management has paused on providing forward-looking guidance due to uncertainty regarding the impact of tariffs and consumer demand [26] Q&A Session Summary Question: Can you provide more details on the uneven demand during the quarter? - Management noted that weekly store traffic and sales were volatile, with weak performance leading up to Labor Day followed by a strong week after, then a drop again [31][34] Question: What is the level of the tariff surcharges? - The company implemented an 8.5% surcharge for the previous 20% tariff, which increased to 15% in anticipation of the new 30% tariff [36][38] Question: What percentage of sales do you aim to derive from new products? - The long-term goal is for 30% to 40% of sales to come from new products, with over 50% of sales in the first quarter derived from new products [40] Question: Can you clarify the dynamics regarding USMCA compliance and tariffs? - The new Section 232 tariffs do not exempt USMCA compliant products, which changes the previous dynamics [51] Question: How do you view the competitive pricing landscape? - Competitors are passing through tariff increases, with some going as high as 21-25%, while Flexsteel is implementing a 15% surcharge [53]

Core Insights - Flexsteel Industries (FLXS) reported quarterly earnings of $1.31 per share, exceeding the Zacks Consensus Estimate of $0.78 per share, and showing an increase from $0.74 per share a year ago, resulting in an earnings surprise of +67.95% [1] - The company achieved revenues of $110.44 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 4.80% and up from $104.01 million year-over-year [2] - Flexsteel has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The future performance of Flexsteel's stock will largely depend on management's commentary during the earnings call and the sustainability of the recent earnings surprise [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.56 on revenues of $107.4 million, while the estimate for the current fiscal year is $3.00 on revenues of $445.13 million [7] Industry Context - The furniture industry, to which Flexsteel belongs, is currently ranked in the bottom 19% of over 250 Zacks industries, indicating a challenging environment [8] - La-Z-Boy (LZB), another company in the same industry, is expected to report a year-over-year earnings decline of -26.8% in its upcoming report [9]

Core Insights - Flexsteel Industries, Inc. reported a net sales increase of 6.2% for the first quarter of fiscal 2026, reaching $110.4 million compared to $104.0 million in the same quarter of the previous year [1][1][1] - The company's GAAP operating income for the quarter was $9.0 million, representing 8.1% of net sales [1][1][1] Financial Performance - Net sales for the first quarter were $110.4 million, up from $104.0 million year-over-year, indicating a positive growth trend [1][1][1] - GAAP operating income stood at $9.0 million, which is a significant figure reflecting the company's operational efficiency [1][1][1]

Financial Performance - Net sales for the first quarter were $110.4 million, an increase of 6.2% compared to $104.0 million in the prior year quarter[4] - GAAP operating income was $9.0 million, representing 8.1% of net sales, compared to $6.0 million or 5.8% of net sales in the prior year quarter[4] - GAAP net income per diluted share increased to $1.31, up from $0.74 in the prior year quarter[4] - Gross margin improved to 23.5%, a 200 basis point increase from 21.5% in the prior year quarter, driven by sales leverage and favorable foreign currency translation[7] - Selling, general and administrative (SG&A) expenses decreased to 15.4% of net sales from 15.7% in the prior year quarter[8] - The company reported a strong operating margin improvement for the tenth consecutive quarter, with a 230 basis point increase year-over-year[3] Cash and Capital Management - The company ended the quarter with a cash balance of $38.6 million and working capital of $116.9 million[10] - Capital expenditures for the quarter were $1.4 million[10] Market Outlook - The company anticipates a 25% tariff on imported upholstered furniture, effective September 29, 2025, which may disrupt consumer demand and industry margins[5] - The company remains optimistic about long-term industry growth despite facing near-term risks and headwinds[3]

Core Insights - The ongoing earnings season presents opportunities for investors, particularly in stocks with strong cash levels, as cash is essential for a company's resilience and financial health [1][3][4] Group 1: Importance of Cash Flow - Companies can be profitable yet face cash flow issues, leading to potential bankruptcy if profits are not managed properly [3] - Positive cash flow indicates an increase in liquid assets, enabling companies to meet obligations, reinvest, and return wealth to shareholders [5] - Increasing cash flow is crucial for future growth, reflecting management's efficiency and reducing reliance on external financing [6] Group 2: Screening Criteria for Stocks - Stocks were screened for those with cash flow in the latest quarter at least equal to the 5-year average, indicating a positive trend [7] - Additional criteria included Zacks Rank 1, average broker rating of 1, current price above $5, and a VGM Score of B or better [8] Group 3: Selected Stocks - Sumitomo Corporation (SSUMY) has a VGM Score of B, with a 4.1% increase in fiscal 2026 earnings estimate [9][10] - Mission Produce, Inc. (AVO) has a VGM Score of B, with a 13.6% upward revision in fiscal 2025 earnings estimate [10] - Flexsteel Industries, Inc. (FLXS) holds a VGM Score of A, with a 5.5% increase in fiscal 2026 earnings estimate [11] - FreightCar America, Inc. (RAIL) has a VGM Score of A, with a 14.9% increase in current-year earnings estimate [12]