Financial Data and Key Metrics Changes - For the fourth quarter, net sales were $114.6 million, representing a growth of 3.4% compared to $110.8 million in the prior year quarter, marking the seventh consecutive quarter of sales growth [14] - The adjusted operating margin was 9% in the quarter, a 340 basis point improvement over the prior year quarter, while the adjusted operating profit increased by 71% to $31.2 million for the fiscal year [5][7] - Free cash flow for the quarter was $19.1 million, contributing to an ending cash balance of $40 million [6][7] Business Line Data and Key Metrics Changes - Growth in core markets was driven by strategic accounts and new product introductions, particularly in the health and wellness category with ZCLINER products [5] - The company experienced a sales order backlog of $66.5 million at the end of the period, an increase of $6.9 million compared to the prior year [14] Market Data and Key Metrics Changes - The company noted soft market conditions and tariff uncertainty as industry headwinds, yet managed to achieve sales growth in both core and new markets [4][10] - The demand environment was characterized as "choppy," with retail traffic being soft during the summer months, influenced by uncertainty around tariffs and inflation [40] Company Strategy and Development Direction - The company plans to focus on further penetrating the health and wellness and case goods product categories, with an emphasis on innovation and marketing to drive brand awareness [9][10] - Strategic initiatives include enhancing customer experience, product relevance, and faster product launches to maintain growth momentum [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current environment, despite anticipating continued difficult industry conditions [10][21] - The company is actively working on cost savings initiatives to mitigate the impact of tariffs, including supply chain adjustments and pricing actions [11][12] Other Important Information - The company has increased its dividend twice in the past twelve months and maintains a healthy cash balance [7] - The effective tax rate for fiscal year 2026 is expected to be in the range of 25% to 27% [19] Q&A Session Summary Question: Initial reaction to pricing actions or surcharges - Management noted that they are closely collaborating with retailers to understand the impact of pricing changes on demand and believe they are positioned well despite the challenges [25][26] Question: New cost savings initiatives - Management confirmed that they are pursuing cost savings across the supply chain and these initiatives are factored into the first quarter guidance for margins [27][28] Question: Focus on new product innovation - Management indicated that the focus on new product innovation is a continuation of previous efforts, which have been key to their growth success [30] Question: Inventory management - Management expressed confidence in their inventory position and ability to serve customers, while also noting potential incremental costs due to higher tariff rates [31][32] Question: Capital allocation strategy - Management reiterated their capital allocation strategy of reinvesting 70% of operating cash flow back into the business and returning 30% to shareholders [33][34] Question: Demand characterization - Management characterized demand as choppy, influenced by external factors such as tariffs and inflation, but remains optimistic about long-term recovery [40][41]

Company Performance - Flexsteel Industries Inc (NASDAQ: FLXS) reported fiscal Q4 results for the April-June period, showing an impressive profitability beat and fair sales momentum despite challenging conditions [1] - The stock increased by 22% in post-market trading following the earnings report [1] Investment Insights - The investment philosophy focuses on identifying mispriced securities by understanding the drivers behind a company's financials, often revealed through a DCF model valuation [1]

[Company Overview](index=4&type=section&id=About%20Flexsteel) Flexsteel Industries, Inc. is a leading US residential furniture manufacturer, importer, and marketer, known for its unique steel drop-in seat spring - Flexsteel Industries, Inc. is one of the largest manufacturers, importers, and marketers of residential furniture products in the United States, offering a wide variety of furniture including sofas, loveseats, chairs, tables, and bedroom furniture[17](index=17&type=chunk) - A featured component in most upholstered furniture is Flexsteel's unique steel drop-in seat spring, with products distributed throughout the United States through its e-commerce channel and direct sales force[17](index=17&type=chunk) [Executive Summary & Key Highlights](index=1&type=section&id=Key%20Results%20for%20the%20Fourth%20Quarter%20and%20Fiscal%20Year%20Ended%20June%2030%2C%202025) The company achieved strong Q4 and FY2025 financial results, marked by consistent sales growth, improved operating margins, record EPS, and robust free cash flow generation [Management Commentary](index=1&type=section&id=Management%20Commentary) Management reported strong Q4 and FY2025 performance with consistent sales growth, improved margins, record EPS, and strategic actions to mitigate tariff risks - Flexsteel achieved its **seventh consecutive quarter of year-over-year sales growth (3.4%)** and **ninth consecutive quarter of adjusted operating margin improvement (9%)** in Q4 FY2025, driven by diversified growth and investments[3](index=3&type=chunk) - For FY2025, the company delivered **7% sales growth**, expanded adjusted operating margins by **270 basis points to 7.1%**, increased adjusted operating profit by **71% to $31.2 million**, and achieved record adjusted diluted EPS of **$4.17**[5](index=5&type=chunk) - Flexsteel generated **$45.3 million of free cash flow** in FY2025, enabling two dividend increases and building a healthy cash balance of **$40 million**, with plans to mitigate tariff risks in FY2026 through supply chain adjustments and cost savings[5](index=5&type=chunk) [Financial Highlights (Q4 & FY2025)](index=1&type=section&id=Financial%20Highlights%20%28Q4%20%26%20FY2025%29) Q4 and FY2025 financial highlights demonstrate significant improvements in net sales, operating income, and diluted EPS, alongside strong cash generation Financial Highlights (Q4 & FY2025) | Metric | Q4 FY2025 | Q4 FY2024 | YoY Change (Q4) | FY2025 | FY2024 | YoY Change (FY) | | :-------------------------------- | :------- | :------- | :-------------- | :------- | :------- | :-------------- | | Net Sales (millions) | $114.6 | $110.8 | +3.4% | $441.1 | $412.8 | +6.9% | | GAAP Operating Income (millions) | $14.0 | $7.6 | +84.2% | $26.6 | $17.1 | +55.6% | | GAAP Operating Margin | 12.2% | 6.9% | +5.3 pp | 6.0% | 4.1% | +1.9 pp | | Adjusted Operating Income (millions) | $10.3 | $6.2 | +66.1% | $31.3 | $18.3 | +71.0% | | Adjusted Operating Margin | 9.0% | 5.6% | +3.4 pp | 7.1% | 4.4% | +2.7 pp | | GAAP Diluted EPS | $1.89 | $0.89 | +112.4% | $3.55 | $1.91 | +85.9% | | Adjusted Diluted EPS | $1.40 | $0.75 | +86.7% | $4.17 | $2.11 | +97.6% | | Cash Flow from Operations (Q4, millions) | $15.6 | N/A | N/A | N/A | N/A | N/A | | Cash on Hand (June 30, millions) | $40.0 | N/A | N/A | N/A | N/A | N/A | [Financial Performance Review (Q4 & FY2025)](index=2&type=section&id=Operating%20Results%20for%20the%20Fourth%20Quarter%20Ended%20June%2030%2C%202025) The company reported strong Q4 and FY2025 financial performance with increased sales, improved margins, higher operating income, and a robust liquidity position [Net Sales Performance](index=2&type=section&id=Net%20Sales%20Performance) Q4 FY2025 net sales increased by 3.4% due to higher soft seating unit volume, partially offset by lower homestyles ready-to-assemble product sales - Net sales for Q4 FY2025 increased by **$3.8 million, or 3.4%, to $114.6 million**, primarily due to higher unit volume from soft seating products, partially offset by decreases in homestyles branded ready-to-assemble products[6](index=6&type=chunk) [Gross Margin Analysis](index=2&type=section&id=Gross%20Margin%20Analysis) Gross margin improved by 260 basis points to 23.9% in Q4 FY2025, primarily due to foreign currency translation benefits, despite tariff impacts - Gross margin for Q4 FY2025 was **23.9%**, up **260 bps** from 21.3% for the prior-year quarter, primarily driven by a **300-bps benefit from foreign currency translation** of peso-denominated assets, partially offset by a **40-bps net impact of tariffs**[7](index=7&type=chunk) [Selling, General and Administrative Administrative Expenses](index=2&type=section&id=Selling%2C%20General%20and%20Administrative%20Administrative%20Expenses) SG&A expense decreased by 200 basis points to 15.0% of net sales in Q4 FY2025, driven by sales leverage and non-recurring prior-year charges - SG&A expense was **15.0% of net sales** in Q4 FY2025, a **200-bps decrease** from 17.0% in the prior year, attributed to leverage on higher sales and the non-recurrence of a **$1.5 million non-cash charge** for equity grant modification in the prior year[8](index=8&type=chunk) [Other Operating Items](index=2&type=section&id=Other%20Operating%20Items) Flexsteel recognized a $3.7 million pre-tax gain in Q4 FY2025 from the sale of an ancillary building - Flexsteel recorded a **pre-tax gain of $3.7 million** in Q4 FY2025 from the sale of an ancillary building, formerly part of its Huntingburg, IN distribution center complex[9](index=9&type=chunk) [Operating Income and Net Income](index=2&type=section&id=Operating%20Income%20and%20Net%20Income) Q4 FY2025 saw substantial increases in both GAAP and adjusted operating income and net income, alongside changes in effective tax rates Operating Income and Net Income | Metric | Q4 FY2025 (millions) | Q4 FY2024 (millions) | YoY Change | | :----------------------- | :------------------- | :------------------- | :--------- | | GAAP Operating Income | $14.0 | $7.6 | +84.2% | | Adjusted Operating Income | $10.3 | $6.2 | +66.1% | | Income Tax Expense | $3.6 | $2.5 | +44.0% | | Effective Tax Rate | 25.0% | 33.9% | -8.9 pp | | GAAP Net Income | $10.7 | $4.9 | +118.4% | | GAAP Diluted EPS | $1.89 | $0.89 | +112.4% | | Adjusted Net Income | $7.9 | $4.1 | +92.7% | | Adjusted Diluted EPS | $1.40 | $0.75 | +86.7% | [Liquidity and Financial Position](index=3&type=section&id=Liquidity) Flexsteel maintained a strong liquidity position at Q4 FY2025 end, characterized by a significant cash balance, healthy working capital, and substantial credit availability Liquidity and Financial Position | Metric | June 30, 2025 (millions) | | :-------------------------------- | :----------------------- | | Cash Balance | $40.0 | | Working Capital | $110.4 | | Secured Line of Credit Availability | $54.1 | | Capital Expenditures (FY2025) | $3.3 | [Financial Outlook (Q1 FY2026)](index=3&type=section&id=Financial%20Outlook) The company provided a Q1 FY2026 financial outlook, projecting sales and operating margin, while acknowledging potential impacts from global trade policies and macroeconomic factors Q1 Fiscal 2026 Outlook | Metric | Q1 Fiscal 2026 Outlook | | :----------------------- | :--------------------- | | Sales | $105 - $110 million | | Sales Growth (vs. Prior Year) | 1% to 6% | | GAAP Operating Margin | 5.5% to 7% | | Free Cash Flow | $(5) to $0 million | - The financial outlook for Q1 FY2026 is subject to material changes due to global trade policy changes, including tariffs, as well as consumer demand and competitive pricing conditions influenced by macro-economic factors[13](index=13&type=chunk) [Financial Statements (Unaudited)](index=5&type=section&id=FLEXSTEEL%20INDUSTRIES%2C%20INC.%20AND%20SUBSIDIARIES%20-%20Financial%20Statements) The unaudited financial statements present the company's balance sheets, income statements, and cash flow statements for the reported periods [Condensed Consolidated Balance Sheets](index=5&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS%20%28UNAUDITED%29) The balance sheet reflects increased total assets and shareholders' equity, primarily due to higher cash, while total liabilities decreased Condensed Consolidated Balance Sheets | ASSETS (in thousands) | June 30, 2025 | June 30, 2024 | Change | | :-------------------------- | :------------ | :------------ | :----- | | Cash and cash equivalents | $40,006 | $4,761 | +$35,245 | | Total current assets | $172,372 | $155,381 | +$16,991 | | Total assets | $282,486 | $274,462 | +$8,024 | | LIABILITIES (in thousands) | | | | | Total current liabilities | $62,014 | $60,406 | +$1,608 | | Lines of credit | $0 | $4,822 | -$4,822 | | Total liabilities | $114,624 | $124,095 | -$9,471 | | SHAREHOLDERS' EQUITY (in thousands) | | | | | Total shareholders' equity | $167,862 | $150,367 | +$17,495 | [Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20INCOME%20AND%20COMPREHENSIVE%20INCOME%20%28UNAUDITED%29) The income statement shows strong growth in net sales, gross profit, and net income for Q4 and FY2025, with improved operating income and diluted EPS Consolidated Statements of Income and Comprehensive Income | (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $114,611 | $110,822 | $441,073 | $412,752 | | Cost of goods sold | $87,175 | $87,255 | $343,129 | $325,508 | | Gross profit | $27,436 | $23,567 | $97,944 | $87,244 | | Selling, general and administrative expenses | $17,164 | $18,878 | $66,696 | $70,444 | | Operating income | $13,974 | $7,596 | $26,615 | $17,080 | | Income before income taxes | $14,262 | $7,447 | $26,966 | $15,550 | | Net income and comprehensive income | $10,702 | $4,922 | $20,154 | $10,528 | | Diluted Earnings per share | $1.89 | $0.89 | $3.55 | $1.91 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS%20%28UNAUDITED%29) FY2025 operating cash flow significantly increased, leading to a substantial rise in cash and cash equivalents, despite net cash used in financing Condensed Consolidated Statements of Cash Flows | (in thousands) | For the years ended June 30, 2025 | For the years ended June 30, 2024 | | :-------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $20,154 | $10,528 | | Net cash provided by operating activities | $36,979 | $31,883 | | Net cash provided by (used in) investing activities | $9,432 | $(593) | | Net cash (used in) financing activities | $(11,166) | $(29,894) | | Increase in cash and cash equivalents | $35,245 | $1,396 | | Cash and cash equivalents at end of period | $40,006 | $4,761 | [Non-GAAP Financial Measures Reconciliation](index=8&type=section&id=NON-GAAP%20DISCLOSURE%20%28UNAUDITED%29) This section provides reconciliations of GAAP financial measures to non-GAAP adjusted figures for operating income, net income, and diluted earnings per share [Adjusted Operating Income and Margin](index=8&type=section&id=Reconciliation%20of%20GAAP%20operating%20income%20to%20adjusted%20operating%20income%20and%20GAAP%20operating%20margin%20to%20adjusted%20operating%20margin) Reconciliation details adjustments to GAAP operating income and margin for non-recurring items, resulting in higher adjusted figures for FY2025 Adjusted Operating Income and Margin | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------- | | Reported GAAP operating income | $13,974 | $7,596 | $26,615 | $17,080 | | Adjusted operating income | $10,272 | $6,199 | $31,248 | $18,310 | | GAAP operating margin | 12.2% | 6.9% | 6.0% | 4.1% | | Adjusted operating margin | 9.0% | 5.6% | 7.1% | 4.4% | [Adjusted Net Income](index=8&type=section&id=Reconciliation%20of%20GAAP%20net%20income%20to%20adjusted%20net%20income) Adjusted net income for Q4 and FY2025 significantly surpassed GAAP net income after accounting for non-recurring items and tax impacts Adjusted Net Income | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------- | | Reported GAAP net income | $10,702 | $4,922 | $20,154 | $10,528 | | Adjusted net income | $7,933 | $4,142 | $23,666 | $11,645 | [Adjusted Diluted Earnings Per Share](index=9&type=section&id=Reconciliation%20of%20GAAP%20diluted%20earnings%20per%20share%20of%20common%20stock%20to%20adjusted%20diluted%20earnings%20per%20share%20of%20common%20stock) Adjusted diluted EPS for Q4 and FY2025 exceeded GAAP diluted EPS, reflecting the exclusion of specific non-recurring items and their tax effects Adjusted Diluted Earnings Per Share | | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Twelve Months Ended June 30, 2025 | Twelve Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :-------------------------------- | :-------------------------------- | | Reported GAAP diluted income per share | $1.89 | $0.89 | $3.55 | $1.91 | | Adjusted diluted earnings per share | $1.40 | $0.75 | $4.17 | $2.11 | [Additional Information](index=4&type=section&id=Conference%20Call%20and%20Webcast) This section provides details on the conference call, outlines forward-looking statements and associated risks, and lists investor contact information [Conference Call and Webcast Details](index=4&type=section&id=Conference%20Call%20and%20Webcast%20Details) Flexsteel hosted a conference call and webcast on August 19, 2025, to discuss results, with details provided for access and replay - Flexsteel hosted a conference call and audio webcast on Tuesday, August 19, 2025, at 8:00 a.m. Central Time to discuss the results[15](index=15&type=chunk) - Investors can pre-register for the call at https://dpregister.com/sreg/10201908/ffafac91fc to receive a personalized phone number and PIN[16](index=16&type=chunk) - Conference call replay is available through August 26, 2025, via domestic (877-344-7529) or international (412-317-0088) numbers with access code 5539061, and live/archived webcast is available at ir.flexsteel.com[20](index=20&type=chunk) [Forward-Looking Statements & Risks](index=4&type=section&id=Forward-Looking%20Statements) The report includes forward-looking statements subject to risks such as industry cyclicality, supply chain disruptions, tariffs, and general economic conditions - Forward-looking statements in the report are subject to risks and uncertainties, including the cyclical nature of the furniture industry, supply chain disruptions, litigation, new product introductions and distribution channels effectiveness, product mix of sales, pricing pressures, and the cost of raw materials and fuel[18](index=18&type=chunk) - Additional risk factors include changes in foreign currency values, retention and recruitment of key employees, actions by governments (laws, regulations, taxes, tariffs), sales generated and profit margins, competition, credit exposure with customers, participation in multi-employer pension plans, disruptions or security breaches to business information systems, the impact of any future pandemic, and general economic conditions[18](index=18&type=chunk) [Investor Contact](index=9&type=section&id=Investor%20Contact) Investor relations contact information is provided for inquiries - For investor inquiries, contact Michael Ressler at Flexsteel Industries, Inc. via phone at **563-585-8116** or email at **investors@flexsteel.com**[30](index=30&type=chunk)

Earnings Report - Flexsteel Industries, Inc. is set to release its fourth-quarter earnings results on August 18, with analysts expecting earnings of 84 cents per share, an increase from 75 cents per share in the same period last year [1] - The company is projected to report quarterly revenue of $111.82 million, compared to $110.82 million a year earlier [1] Dividend Information - Flexsteel Industries currently offers an annual dividend yield of 2.24%, translating to a quarterly dividend of 20 cents per share, or 80 cents annually [2] - To achieve a monthly income of $500 from dividends, an investment of approximately $268,050 or around 7,500 shares is required, while a more modest goal of $100 per month would need about $53,610 or 1,500 shares [2] Dividend Yield Calculation - The dividend yield is calculated by dividing the annual dividend payment by the stock's current price, which can fluctuate based on changes in the stock price [3] - For instance, if a stock pays an annual dividend of $2 and is priced at $50, the yield is 4%. If the price rises to $60, the yield drops to 3.33%, and if it falls to $40, the yield increases to 5% [3] Impact of Dividend Changes - Changes in dividend payments can also affect the yield; an increase in dividends will raise the yield if the stock price remains constant, while a decrease will lower the yield [4] Stock Performance - Shares of Flexsteel Industries fell by 1.8%, closing at $35.74 on Thursday [4]

Core Insights - Five stocks have been added to the Zacks Rank 1 (Strong Buy) List, indicating strong potential for investment returns Group 1: Company Earnings Estimates - Flexsteel Industries, Inc. (FLXS) has seen a 7.4% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [1] - Rockwell Automation, Inc. (ROK) has experienced a 5.7% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [1] - The E.W. Scripps Company (SSP) has seen a 14.3% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [2] - Virtu Financial, Inc. (VIRT) has experienced an 8.5% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [2] - Greystone Housing Impact Investors LP (GHI) has seen a 10.1% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [3]

Group 1: Flexsteel Industries, Inc. (FLXS) - The company is a manufacturer of upholstered furniture and holds a Zacks Rank 1 [1] - The Zacks Consensus Estimate for its current year earnings has increased by 7.4% over the last 60 days [1] - Flexsteel has a price-to-earnings ratio (P/E) of 8.06, which is lower than the industry average of 8.30, and possesses a Value Score of A [1] Group 2: Greystone Housing Impact Investors LP (GHI) - The company operates in the mortgage revenue bonds sector and also carries a Zacks Rank 1 [2] - The Zacks Consensus Estimate for its current year earnings has increased by 10.1% over the last 60 days [2] - Greystone Housing has a P/E ratio of 9.08, significantly lower than the industry average of 15.20, and has a Value Score of B [2] Group 3: Virtu Financial, Inc. (VIRT) - This financial services company holds a Zacks Rank 1 [3] - The Zacks Consensus Estimate for its current year earnings has increased by 8.5% over the last 60 days [3] - Virtu has a P/E ratio of 10.36, compared to the industry average of 15.20, and possesses a Value Score of B [3]

Group 1 - Greystone Housing Impact Investors LP (GHI) has seen a 10.1% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days and offers a dividend yield of 12.4%, significantly higher than the industry average of 0.0% [1] - Virtu Financial, Inc. (VIRT) has experienced an 8.5% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days, with a dividend yield of 2.3%, also above the industry average of 0.0% [2] - Flexsteel Industries, Inc. (FLXS) has had a 7.4% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [2]

Company Performance - Flexsteel Industries, Inc. (FLXS) reported strong financial momentum in its fiscal Q3 results, showcasing better performance compared to industry peers [1] - The company continues to demonstrate robust financial health, indicating a positive outlook for future growth [1] Investment Philosophy - The investment philosophy focuses on identifying mispriced securities by understanding the drivers behind a company's financials, often revealed through a DCF model valuation [1] - This approach allows for a flexible investment strategy that encompasses various stock prospects, rather than being confined to traditional value, dividend, or growth investing [1]

Financial Performance - Net sales for the quarter ended March 31, 2025, were $114.0 million, an increase of 6.3% compared to $107.2 million in the prior year quarter[57] - For the nine months ended March 31, 2025, net sales were $326.5 million, an increase of 8.1% from $301.9 million in the prior-year period[67] - Net loss for the quarter ended March 31, 2025, was $3.7 million, or $(0.71) per diluted share, compared to net income of $1.8 million, or $0.33 per diluted share in the prior year quarter[65] Operational Metrics - Home furnishings backlog increased by 25.8% to $78.3 million as of March 31, 2025, compared to $61.5 million in the prior year quarter[58] - Gross margin for the quarter ended March 31, 2025, was 22.2%, up 50 basis points from 21.7% in the prior year quarter[59] - Selling, general and administrative expenses decreased to $17.1 million, or 15.0% of net sales, compared to 16.5% in the prior year quarter[60] Cash Flow and Financing - Net cash provided by operating activities for the nine months ended March 31, 2025, was $21.4 million, down from $24.4 million in the prior year[77] - The company completed the sale of its Dublin, Georgia facility, recording a pre-tax gain of $5.0 million during the nine-month period[70] - Income tax expense for the nine months ended March 31, 2025, was $3.3 million, with an effective rate of 25.6%, compared to $2.5 million and 30.8% in the prior-year period[73] Debt and Credit Facilities - As of March 31, 2025, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit, with letters of credit outstanding totaling $0.9 million[86] - The Credit Agreement provides for up to an $85 million revolving line of credit, with a financial covenant to maintain a fixed coverage ratio of not less than 1.00 to 1.00[83] - The interest rate on borrowings under the amended Credit Agreement is based on the Secured Overnight Financing Rate (SOFR) plus 1.36% to 1.61%, with an effective interest rate of 5.72% as of March 31, 2025[85] Foreign Currency and Market Risks - The Company does not employ any foreign currency hedges against operating expense exposure, which could increase costs if the U.S. dollar weakens against the Mexican Peso[89] - During the third quarter of fiscal year 2025, the Company utilized a derivative instrument to reduce exposure to foreign currency risk, which expired on March 31, 2025, without being utilized[90] - The Company believes that changes in market risk factors, such as interest rates and foreign exchange rates, will not cause material fluctuations in its results of operations or cash flows[88] Regulatory and Contractual Obligations - As of March 31, 2025, there have been no material changes to the Company's contractual obligations presented in the Annual Report for the year ended June 30, 2024[87] - The Company is subject to risks related to furniture product importation, including government regulations, tariffs, and fluctuations in the value of the U.S. dollar[88]

Financial Data and Key Metrics Changes - The third quarter net sales were $114 million, representing a growth of 6.3% compared to $107.2 million in the prior year quarter, marking the sixth consecutive quarter of year-over-year sales growth [29][10] - The adjusted operating margin was 7.3%, which is the second highest quarterly adjusted operating margin over the past seven years, reflecting an increase of 210 basis points from the prior year quarter [13][31] - Operating cash flow for the quarter was $12.3 million, with ending cash at $22.6 million, indicating a strong financial position [14][32] Business Line Data and Key Metrics Changes - Sales growth was driven by higher unit volumes and pricing from ocean freight surcharges, with significant success in new product introductions and share gains with large strategic accounts [10][29] - The company showcased 25 new product groups at the April Highpoint Market, expanding its Z-Clinr lineup and enhancing its soft seating portfolio [12][11] Market Data and Key Metrics Changes - Vietnam production supports roughly 55% of revenue, while Mexican operations support almost 40% of sales, with current tariffs impacting products sourced from Vietnam [17][30] - The company has seen a slowdown in incoming orders from retailers due to tariff announcements, with a healthy backlog of $78.3 million at the start of the fourth quarter [22][34] Company Strategy and Development Direction - The company remains focused on executing growth strategies, emphasizing new product introductions and enhancing customer experience as key components of its success [41][55] - The company is actively seeking alternative sourcing options beyond Vietnam and Mexico to mitigate tariff risks and maintain competitive pricing [62][63] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the potential impact of tariffs on margins, pricing, and supply chain design, particularly in light of the proposed U.S. reciprocal tariff [15][24] - The outlook for the industry is moderately pessimistic due to external challenges to consumer spending, with management prepared to navigate multiple demand scenarios [25][24] Other Important Information - The company recorded a $14.1 million non-cash impairment charge related to its facility in Mexicali, Mexico, due to changes in U.S. furniture demand [30][31] - The company has implemented modest tariff surcharges on new orders to partially offset the impact of tariffs, although these do not completely mitigate the 10% tariff on Vietnam imports [20][57] Q&A Session Summary Question: Changes in order patterns during the March quarter - Management noted a typical seasonal slowdown in March, but year-over-year growth remained consistent until the tariff announcement in early April, which led to a significant slowdown in orders [50][52] Question: Goals for new product contributions - Over half of current sales are derived from new products launched in the last couple of years, and the company remains committed to driving new product introductions regardless of external conditions [54][55] Question: Competitors' responses to tariff surcharges - Competitors have implemented their own surcharges, and the company's guidance assumes the current 10% Vietnam tariff remains intact, with minor dilution expected in operating margins [57][58] Question: Sourcing from alternative countries - The company is actively seeking suppliers in other Southeast Asian countries and is prepared to optimize its supply chain based on trade negotiations [62][63] Question: Impact of tariffs on gross margins - The magnitude of tariffs will determine their impact on margins, with near-term expectations of slight dilution, but efforts will be made to minimize the impact on consumers [66][67]