Financial Data and Key Metrics Changes - For Q1 2026, net sales were $110.4 million, reflecting a 6.2% increase compared to $104 million in the prior year quarter, marking the eighth consecutive quarter of sales growth [23][24] - Operating margin improved to 8.1%, up from 5.8% in the prior year quarter, representing the tenth consecutive quarter of year-over-year adjusted operating margin improvement [6][24] - The current quarter included approximately $2.4 million in pricing from tariff surcharges [23] 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 HomeStyles branded ready-to-assemble category [23] - Sales order backlog at the end of the period was $66.7 million, relatively flat compared to the prior quarter [23] Market Data and Key Metrics Changes - Industry demand remains lackluster due to challenging macroeconomic conditions, with consumer traffic and sales being uneven during the recent quarter [5][8] - The new Section 232 tariffs on imported timber and upholstered furniture are expected to have a significant impact on Flexsteel's business and the broader furniture industry [9][10] Company Strategy and Development Direction - The company is focused on growth strategies that include consumer research, new product development, and innovation [5][12] - Flexsteel is introducing 26 new product groups and 226 unique SKUs, with a long-term goal of achieving 30% to 40% of sales from new products launched within the last three years [15][40] - The company is pursuing a multipronged response plan to mitigate tariff impacts, including increasing tariff surcharges and evaluating structural cost reduction opportunities [13][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term industry growth despite near-term challenges from tariffs and macroeconomic conditions [14][26] - The company is well-positioned to navigate the challenging environment with a solid balance sheet and healthy profitability [12][26] Other Important Information - The company ended the quarter with a cash balance of $38.6 million and no bank debt, indicating effective working capital management [25] - Management has paused on providing forward-looking guidance due to uncertainty regarding the impact of tariffs and consumer demand [26] 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 after, then a drop again [31][34] Question: What is the level of the tariff surcharges? - The company implemented an 8.5% surcharge for the previous 20% tariff, which increased to 15% in anticipation of the new 30% tariff [36][38] Question: What percentage of sales do you 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 sales in the first quarter derived from new products [40] Question: Can you clarify the dynamics regarding USMCA compliance and tariffs? - The new Section 232 tariffs do not exempt USMCA compliant products, which changes the previous dynamics [51] Question: How do you view the competitive pricing landscape? - Competitors are passing through tariff increases, with some going as high as 21-25%, while Flexsteel is implementing a 15% surcharge [53]