Financial Data and Key Metrics Changes - For Q2 2026, net sales were $118.2 million, reflecting a 9% increase from $108.5 million in the prior year quarter, marking the ninth consecutive quarter of year-over-year sales growth [12] - GAAP operating income for the quarter was $9.0 million, or 7.6% of sales, compared to $11.7 million in the prior year quarter, which included a $5 million gain from the sale of a manufacturing facility [12][13] - The current quarter's operating income increased by 35% compared to adjusted operating income of $6.7 million or 6.1% of sales in the prior year quarter [13] Business Line Data and Key Metrics Changes - The increase in sales was primarily driven by higher unit volume in sourced soft seating products and pricing from tariff surcharges, partially offset by lower unit volume in made-to-order soft seating products and Homestyles branded ready-to-assemble products [12] - Sales order backlog at the end of the period was $82.4 million, which includes estimated tariff surcharges [12] Market Data and Key Metrics Changes - Industry demand remains uneven, with consumer behavior showing variability influenced by economic uncertainty and inflation concerns [8] - Feedback from retail partners indicates that consumer engagement fluctuates, impacting overall industry demand [8] Company Strategy and Development Direction - The company is focusing on agility, discipline, and long-term value creation, with a strong emphasis on new product introductions and strategic account growth [4][5] - Flexsteel is actively evaluating cost reduction opportunities and alternative supply chain options to strengthen its long-term position [10] Management's Comments on Operating Environment and Future Outlook - The management acknowledges that the U.S. economy shows resilience, but housing activity and discretionary spending remain inconsistent, weighing on overall industry demand [8] - The company expects some margin dilution in the second half of fiscal 2026 due to higher cost inventory burdened with tariffs, but remains confident in its ability to manage costs and protect margins [15][31] Other Important Information - The company ended the quarter with a cash balance of $36.8 million and working capital of $126 million, with no bank debt [14] - The increase in working capital was driven by higher cost inventory due to tariffs and an intentional increase in safety stock of top-selling products [15] Q&A Session Summary Question: Can you talk about unit volumes and pricing as far as how that impacted the quarter? - The tariff revenue in the quarter was approximately $9.5 million, with unit volumes relatively flat compared to the prior quarter, although some categories saw increases while others experienced declines [19][20] Question: What portion of your sales is now coming from new products? - Over the last 6-8 quarters, 30%-40% of overall sales have been derived from new products, which is a substantial driver for gaining market share [22] Question: Are there additional retailers that you think you may be underpenetrated in? - The company has identified about 20 large independent retailers as strategic accounts, with potential for significant growth through existing and emerging relationships [25][26] Question: How do you expect to offset tariff impacts going forward? - The company has been able to mitigate tariff impacts through pricing actions and cost savings initiatives, but expects some margin dilution in the back half of the year due to higher cost inventory [29][31] Question: Was there anything unusual regarding the tax rate this quarter? - There was a slight impact related to foreign taxes, but the tax rate going forward is expected to align more closely with the full-year tax rate [32]

Financial Data and Key Metrics Changes - For Q2 2026, net sales were $118.2 million, reflecting a 9% increase from $108.5 million in the prior year quarter, marking the ninth consecutive quarter of year-over-year sales growth [12] - GAAP operating income was $9.0 million, or 7.6% of sales, compared to $11.7 million in the prior year quarter, which included a $5 million gain from the sale of a manufacturing facility [12][13] - Current quarter operating income increased 35% compared to adjusted operating income of $6.7 million or 6.1% of sales in the prior year quarter [13] Business Line Data and Key Metrics Changes - The increase in sales was primarily driven by higher unit volume in sourced soft seating products and pricing from tariff surcharges, partially offset by lower unit volume in made-to-order soft seating products and Homestyles branded ready-to-assemble products [12] - Sales order backlog at the end of the period was $82.4 million, which includes estimated tariff surcharges [12] Market Data and Key Metrics Changes - Industry demand remains uneven, with consumer behavior showing variability due to economic uncertainty and inflation concerns [8] - Feedback from retail partners indicates that consumer engagement fluctuates, impacting overall industry demand [8] Company Strategy and Development Direction - The company is focusing on agility, discipline, and long-term value creation, with a strong emphasis on new product introductions and strategic account growth [4][5] - Investments in consumer insights, product development, and innovation are aimed at improving the effectiveness of new launches and accelerating adoption across multiple categories [5] - The company is evaluating broader cost reduction opportunities and alternative supply chain options to strengthen its long-term position [10] Management's Comments on Operating Environment and Future Outlook - The external environment is expected to remain unpredictable, with tariff policies evolving and consumer demand patterns being inconsistent [17] - The company is confident in its ability to manage near-term volatility while continuing to invest in growth platforms that support sustained share gains [10][17] Other Important Information - The company ended the quarter with a cash balance of $36.8 million and working capital of $126 million, with no bank debt [13] - The increase in working capital was driven by higher cost inventory due to tariffs and an intentional increase in safety stock of top-selling products [14] Q&A Session Summary Question: Can you talk about unit volumes and pricing as far as how that impacted the quarter? - The tariff revenue in the quarter was approximately $9.5 million, with unit volumes relatively flat compared to the prior quarter, although some categories saw gains while others experienced declines [19][20] Question: What portion of your sales is now coming from new products? - Over the last 6-8 quarters, 30%-40% of overall sales have been derived from new products, which is a substantial driver for gaining market share [22] Question: Are there additional retailers that you think you may be underpenetrated in? - The company has strong relationships with 20 large independent retailers and sees significant growth potential with emerging relationships [24][26] Question: How do you expect to offset tariff impacts going forward? - The company has been able to mitigate tariff impacts through pricing actions and cost savings initiatives, but expects some margin dilution in the second half of the fiscal year due to higher cost inventory [27][30] Question: Was there anything unusual regarding the tax rate this quarter? - There was a slight impact related to foreign taxes, but the tax rate going forward is expected to align more closely with the full-year tax rate [31]

分组1 - Flexsteel Industries reported quarterly earnings of $1.18 per share, exceeding the Zacks Consensus Estimate of $0.79 per share, and showing an increase from $0.95 per share a year ago, resulting in an earnings surprise of +49.37% [1] - The company achieved revenues of $118.25 million for the quarter ended December 2025, surpassing the Zacks Consensus Estimate by 9.99% and increasing from $108.48 million year-over-year [2] - Flexsteel has consistently surpassed consensus EPS estimates over the last four quarters, indicating strong performance [2] 分组2 - The stock's immediate price movement will depend on management's commentary during the earnings call and future earnings expectations [3] - Flexsteel shares have gained approximately 1.4% since the beginning of the year, aligning with the S&P 500's gain of 1.4% [3] - The current consensus EPS estimate for the upcoming quarter is $0.69 on revenues of $113.17 million, and for the current fiscal year, it is $3.54 on revenues of $450.2 million [7] 分组3 - The Zacks Industry Rank places the Furniture industry in the top 40% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5] - Flexsteel currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6]

Financial Performance - Net sales for the second quarter were $118.2 million, an increase of 9.0% compared to $108.5 million in the prior year quarter[4] - GAAP operating income was $9.0 million, or 7.6% of net sales, down from $11.7 million, or 10.7% of net sales in the prior year quarter[4] - Adjusted operating income increased by 35% to $9.0 million, or 7.6% of net sales, compared to $6.7 million, or 6.1% of net sales in the prior year quarter[8] - Net income for the quarter was $6.6 million, or $1.18 per diluted share, compared to $9.1 million, or $1.62 per diluted share in the prior year quarter[9] - Reported GAAP operating income for Q4 2025 was $8,997,000, down from $11,654,000 in Q4 2024, representing a decrease of 22.7%[21] - Adjusted operating income for Q4 2025 was $8,997,000, compared to $6,663,000 in Q4 2024, an increase of 35.1%[21] - Reported GAAP net income for Q4 2025 was $6,644,000, a decrease of 26.5% from $9,054,000 in Q4 2024[22] - Adjusted net income for Q4 2025 was $6,644,000, up from $5,294,000 in Q4 2024, reflecting a growth of 25.6%[22] - Reported GAAP diluted earnings per share for Q4 2025 was $1.18, down from $1.62 in Q4 2024, a decline of 27.1%[23] - Adjusted diluted earnings per share for Q4 2025 was $1.18, compared to $0.95 in Q4 2024, an increase of 24.2%[23] Margins and Expenses - Gross margin improved to 22.7%, up 170 basis points from 21.0% in the prior year quarter, driven by a favorable sales composition of higher margin products[6] - Selling, general and administrative (SG&A) expenses increased to 15.1% of net sales, up from 14.9% in the prior year quarter, primarily due to investments in growth initiatives[7] - The effective income tax rate for the quarter was 28.9%, compared to 22.4% in the prior year quarter[8] - GAAP operating margin for Q4 2025 was 7.6%, down from 10.7% in Q4 2024[21] - Adjusted operating margin for Q4 2025 was 7.6%, compared to 6.1% in Q4 2024, an improvement of 24.6%[21] - The effective tax rate used for adjustments in Q4 2024 was 24.66%[24] Strategic Focus - Flexsteel remains focused on innovation and strategic partnerships to navigate market volatility and drive long-term growth[3] - The company reported a significant increase in unit volume for sourced soft seating products, contributing to sales growth[5] Cash and Working Capital - The company ended the quarter with a cash balance of $36.8 million and working capital of $126.0 million[10]

Core Viewpoint - Flexsteel Industries, Inc. will release its second quarter 2026 financial results on February 2, 2026, after market close [1] Group 1: Financial Results Announcement - The second quarter 2026 financial results will be announced after market close on February 2, 2026 [1] - A conference call and audio webcast for analysts and investors will take place on February 3, 2026, at 8:00 a.m. Central Time to discuss the results [2] - Investors can pre-register for the earnings conference call to receive their dial-in number upon registration [3] Group 2: Company Overview - Flexsteel Industries, Inc. is one of the largest manufacturers and marketers of residential furniture in the U.S., known for its durable seating and timeless designs [4] - The company has been in operation for over 130 years, utilizing patented Blue Steel Spring technology to provide lasting comfort and support [4] - Flexsteel products are available nationwide through retail partners and online channels, aimed at creating inviting living spaces [4] Group 3: Conference Call Details - The live conference call can be accessed at 833-816-1123 for domestic calls and 412-317-0710 for international calls [5] - A replay of the conference call will be available until February 10, 2026, with specific access numbers provided for domestic and international callers [5] - The live and archived webcast can be accessed through the company's investor relations website [5]

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]