Flexsteel(FLXS) - 2025 Q4 - Annual Report

PART I ITEM 1. BUSINESS Flexsteel Industries, Inc. is a leading US residential furniture manufacturer, importer, and marketer, using a blended manufacturing and offshore sourcing strategy - Flexsteel Industries, Inc. is one of the largest manufacturers, importers, and marketers of residential furniture products in the United States, operating in a single reportable segment[14][15] - The company employs a blended strategy of manufacturing in Juarez, Mexico, and sourcing finished products and component parts from offshore suppliers to offer a wide range of price points, styles, and product categories[16][17] Customer Order Backlog (in thousands) | | June 30, 2025 | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Backlog | $66,465 | $59,543 | $49,729 | - Flexsteel had approximately 1,400 employees on June 30, 2025, with about 1,000 in Mexico and 30 in Asia managing quality and coordinating deliveries[21][29] ITEM 1A. RISK FACTORS Flexsteel faces risks from global trade policy, tariffs, inflation, economic downturns, supply chain disruptions, and operational challenges - Changes in global trade policy, including new tariffs (e.g., 20% on goods from Vietnam effective July 31, 2025), could materially impact net sales, cost of goods sold, profit, and cash flow[32] - Inflation in ocean container rates, raw materials, labor, and domestic transportation costs, along with negative shifts in foreign currency values, may continue to impact profitability and increase manufacturing costs[33][34] - The company recorded a pre-tax non-cash asset impairment charge of $14.1 million in Q3 FY2025 for its Mexicali facility's right-of-use asset due to trade uncertainty and diminished subleasing interest[55] - Future success depends on managing its global supply chain, vulnerable to delays, availability issues, and cost increases due to international trade policies, geopolitical pressures, and transportation challenges[37][39][40] ITEM 1B. UNRESOLVED STAFF COMMENTS The company reports no unresolved staff comments - There are no unresolved staff comments[61] ITEM 1C. CYBERSECURITY Flexsteel's cybersecurity program aligns with NIST, overseen by the Board, with no material incidents reported to date - The company's cybersecurity risk management program aligns with NIST framework and includes a cross-functional steering team, 24/7 third-party monitoring, regular penetration testing, and quarterly employee training[62][63] - The Board of Directors oversees the cybersecurity risk management program, receiving quarterly status reports from the Chief Information Officer (CIO), who reports directly to the CEO[65] - As of the report date, no cybersecurity incidents have materially affected or are reasonably likely to materially affect the company's business, results of operations, or financial condition[64] ITEM 2. PROPERTIES Flexsteel owns and leases various facilities for distribution, manufacturing, corporate offices, showrooms, and design centers across the US, Mexico, and Asia Owned Facilities as of June 30, 2025 | Location | Size (square feet) | Principal Operations | | :--- | :--- | :--- | | Edgerton, Kansas | 500,000 | Distribution | | Huntingburg, Indiana | 337,000 | Distribution | | Dubuque, Iowa | 40,000 | Corporate Office | Leased Facilities as of June 30, 2025 | Location | Size (square feet) | Principal Operations | | :--- | :--- | :--- | | Mexicali, Mexico | 508,000 | Manufacturing | | Greencastle, Pennsylvania | 206,000 | Distribution | | Juarez, Mexico | 225,000 | Manufacturing | | Juarez, Mexico | 197,000 | Manufacturing | | Juarez, Mexico | 131,000 | Manufacturing | | High Point, North Carolina | 54,000 | Showroom | | El Paso, Texas | 38,000 | Warehouse | | High Point, North Carolina | 11,000 | Design & Engineering Center | | Las Vegas, NV | 10,000 | Showroom | | Shenzhen, China | 2,000 | Office | | Bangkok, Thailand | 1,500 | Office | | Binh Duong, Vietnam | 1,000 | Office | ITEM 3. LEGAL PROCEEDINGS The company is involved in various legal proceedings, none of which are considered material to its business or financial condition - The company is subject to various legal proceedings but does not consider any currently pending matters to be material[68][242] ITEM 4. MINE SAFETY DISCLOSURES The company has no mine safety disclosures to report - There are no mine safety disclosures[69] PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Flexsteel's common stock trades on NASDAQ under FLXS, with a $30 million share repurchase program approved but not yet utilized - Flexsteel's common stock is traded on the NASDAQ Global Select Market under the symbol FLXS[70] - As of August 22, 2025, there were 5,275,963 shares of common stock outstanding[7] - The Board of Directors approved a $30 million share repurchase program on December 11, 2024, with the full amount remaining available as of June 30, 2025[72][74] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes Flexsteel's financial performance, liquidity, capital resources, and critical accounting policies for fiscal years 2025, 2024, and 2023 Results of Operations Flexsteel saw increased net sales and improved gross margin in FY2025, despite an asset impairment, leading to higher net income Key Financial Highlights (as % of Net Sales) | | 2025 | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Net sales | 100.0 % | 100.0 % | 100.0 % | | Cost of goods sold | 77.8 | 78.9 | 82.0 | | Gross margin | 22.2 | 21.1 | 18.0 | | Selling, general and administrative expenses | 15.1 | 17.1 | 16.0 | | Operating income | 6.0 | 4.1 | 2.7 | | Net income and comprehensive income | 4.6 % | 2.6 % | 3.8 % | Net Sales and Net Income (in thousands, except EPS) | Metric | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net sales | $441,073 | $412,752 | $393,692 | | Net income | $20,154 | $10,528 | $14,778 | | Diluted EPS | $3.55 | $1.91 | $2.74 | - Gross margin increased by 110 basis points in FY2025 to 22.2% (from 21.1% in FY2024), driven by fixed cost leverage, supply chain savings, and product portfolio management[83] - A pre-tax non-cash asset impairment charge of $14.1 million was recorded in FY2025 for the Mexicali, Mexico facility's right-of-use asset due to changes in U.S. trade policy and reduced subleasing interest[85] - The company recorded pre-tax gains of $5.0 million from the sale of its Dublin, Georgia facility and $4.4 million from the sale of two ancillary buildings in Huntingburg, Indiana during FY2025[86][87] Liquidity and Capital Resources Flexsteel's working capital increased to $110.4 million in FY2025, supported by improved operating cash flow and asset sales, with no outstanding line of credit borrowings Cash Flow Summary (in thousands) | (in thousands) | FY2025 | FY2024 | | :--- | :--- | :--- | | 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 year | $40,006 | $4,761 | - Working capital increased by $15.4 million to $110.4 million on June 30, 2025, primarily due to a $35.2 million increase in cash, offset by decreases in trade receivables and inventory[101] - The revolving line of credit was reduced from $85 million to $55 million on June 3, 2025, with no outstanding borrowings as of June 30, 2025[113][114] Contractual Obligations as of June 30, 2025 (in thousands) | Obligation | Total | 1 Year | 2-3 Years | 4-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $67,976 | $10,003 | $20,062 | $17,511 | $20,400 | | Warehouse management obligation | $1,735 | $1,388 | $347 | — | — | Outlook For fiscal year 2026, Flexsteel plans to focus on financial agility, profitable growth, supply chain resiliency, operational excellence, and customer experience - Fiscal 2026 focus areas include maintaining financial agility, building foundations for profitable long-term growth in retail and e-commerce, enhancing global supply chain resiliency, operational excellence, strengthening digital capabilities, re-imagining customer experience, and building strong culture and talent[117] Critical Accounting Policies Flexsteel's critical accounting policies involve significant estimates for credit losses, inventory valuation, long-lived assets (including a $14.1 million impairment), and income taxes - Key accounting policies involve estimates for credit losses, inventory valuation (lower of cost or net realizable value using FIFO), and long-lived asset valuation, including a $14.1 million impairment for the Mexicali facility's right-of-use asset in FY2025[119][120][121][122] - The company's income tax accounting involves significant judgment in determining deferred tax assets and liabilities, with recoverability dependent on future taxable income[124][125] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Flexsteel's primary market risk is foreign currency fluctuations, particularly the Mexican Peso, with minimal interest rate risk due to no outstanding debt - Primary market risk exposure is foreign currency risk, mainly from the Mexican Peso, impacting manufacturing wages and VAT receivables, where a negative shift in USD against the Peso could increase costs and decrease receivable value[127] - The company does not currently employ foreign currency hedges, although it utilized a derivative instrument in Q3 FY2025 to reduce Peso exchange rate exposure, which expired without being utilized[127] - Interest rate risk is minimal as the company had no outstanding balance on its line of credit as of June 30, 2025[128] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents Flexsteel's audited consolidated financial statements and an unqualified opinion from Deloitte & Touche LLP on financial statements and internal controls - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the period ended June 30, 2025, and on the effectiveness of internal control over financial reporting[133][134][147][148] - Critical audit matters included the estimation of net realizable value for inventories ($89.1 million as of June 30, 2025) and the Mexicali Right-of-Use Asset Impairment ($14.1 million in FY2025), both involving significant judgment and subjectivity[138][139][140][141] Consolidated Balance Sheet Highlights (in thousands) | Asset/Liability | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $40,006 | $4,761 | | Total current assets | $172,372 | $155,381 | | Total assets | $282,486 | $274,462 | | Total current liabilities | $62,014 | $60,406 | | Total liabilities | $114,624 | $124,095 | | Total shareholders' equity | $167,862 | $150,367 | Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net sales | $441,073 | $412,752 | $393,692 | | Gross profit | $97,944 | $87,244 | $70,947 | | Operating income | $26,615 | $17,080 | $10,542 | | Net income | $20,154 | $10,528 | $14,778 | | Diluted EPS | $3.55 | $1.91 | $2.74 | Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | FY2025 | FY2024 | FY2023 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $36,979 | $31,883 | $22,989 | | Net cash provided by (used in) investing activities | $9,432 | ($593) | ($4,450) | | Net cash (used in) financing activities | ($11,166) | ($29,894) | ($17,358) | | Increase in cash and cash equivalents | $35,245 | $1,396 | $1,181 | | Cash and cash equivalents at end of year | $40,006 | $4,761 | $3,365 | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The company reports no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[248] ITEM 9A. CONTROLS AND PROCEDURES Flexsteel's disclosure controls and internal control over financial reporting were effective as of June 30, 2025, with no material changes reported - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025[249] - Management assessed and concluded that internal control over financial reporting was effective as of June 30, 2025, with an unqualified opinion from Deloitte & Touche LLP[250][251] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[252] ITEM 9B. OTHER INFORMATION No Rule 10b5-1 trading arrangements were adopted or terminated, and the company amended its Cash Incentive and Severance Plans - No director or officer adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[253] - Effective August 19, 2025, the company amended its Cash Incentive Plan, Cash Incentive Notification of Award, and Severance Plan for Management Employees to align with market practices and improve administrative consistency[254] - Amendments to the Severance Plan for Management Employees include an increase to the change of control protection period to 24 months and an increase to the CEO's severance benefits to twice that of other eligible employees[254] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURSIDICTIONS THAT PREVENT INSPECTIONS The company has no disclosures regarding foreign jurisdictions that prevent inspections - There are no disclosures regarding foreign jurisdictions that prevent inspections[255] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE Information on directors, executive officers, and corporate governance will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within 120 days of the fiscal year-end[256] ITEM 11. EXECUTIVE COMPENSATION Information on executive compensation will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within 120 days of the fiscal year-end[257] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information on security ownership and related stockholder matters will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within 120 days of the fiscal year-end[258] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE Information on related party transactions and director independence will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within 120 days of the fiscal year-end[259] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information on principal accountant fees and services will be filed in the 2025 Proxy Statement - Information for this item will be filed in the 2025 Proxy Statement within 120 days of the fiscal year-end[260] PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, AND SCHEDULES This section lists exhibits, financial statements, and schedules, including accounts receivable allowances, and provides required report signatures - This section includes the Index to Consolidated Financial Statements and a schedule for Valuation and Qualifying Accounts[262][263] Accounts Receivable Allowances (in thousands) | Year | Balance at Beginning of Year | Reductions to Income | Deductions from Reserves | Balance at End of Year | | :--- | :--- | :--- | :--- | :--- | | 2025 | $2,440 | ($244) | ($406) | $1,790 | | 2024 | $2,600 | ($144) | ($16) | $2,440 | | 2023 | $2,980 | ($230) | ($150) | $2,600 | - The report is signed by Derek P. Schmidt (CEO and Director) and Michael J. Ressler (CFO), along with other directors, on August 22, 2025[268][269]