Flexsteel(FLXS) - 2026 Q1 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements This section presents Flexsteel's unaudited consolidated financial statements and detailed notes for the period Consolidated Balance Sheets | 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] Consolidated Statements of Income and Comprehensive Income | 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] Consolidated Statements of Changes in Shareholders' Equity | 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] Consolidated Statements of Cash Flows | 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] Notes to Consolidated Financial Statements 1. Basis of Presentation and Description of Business - 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][17] 2. Inventories | 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] 3. Leases - 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][22] | 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 - 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][25][26] - 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][27] 5. Income Taxes | 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] - 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] 6. Stock-Based Compensation - 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] - 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][35] | 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 | 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][41] 8. Segment Information - 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][43] | 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 - 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] 10. Recent Accounting Pronouncements - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition, operational results, liquidity, and capital resources for the quarter General - This section should be read in conjunction with the Consolidated Financial Statements and related notes[47] Critical Accounting Policies - 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] 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] Results of Operations for the Quarter Ended September 30, 2025 vs. 2024 - 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] - Gross margin improved by 200 basis points to 23.5%, primarily due to sales leverage and favorable foreign currency translation in Mexico[53] - 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] Liquidity and Capital Resources - 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] | 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] Line of Credit - 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][69] - 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][70] Contractual Obligations - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the Company's market risk exposures, including foreign currency and interest rate risks 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] Foreign Currency Risk - 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] Interest Rate Risk - 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] Item 4. Controls and Procedures This section confirms disclosure controls effectiveness and reports no significant changes in internal control Evaluation of disclosure controls and procedures - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2025[75] Changes in internal control over financial reporting - 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] Part II – Other Information Cautionary Statement Relevant to Forward-Looking Information 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] - The Company explicitly declines any obligation to publicly revise forward-looking statements to reflect future events or circumstances[79] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] | 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 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] Item 6. Exhibits 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] 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]