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, 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]