Flexsteel(US:FLXS)2025-10-21 14:02Financial 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%-7.3% of sales [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 uneven, with significant volatility observed during the quarter, particularly around Labor Day [27][28] - The company anticipates that the new Section 232 tariffs will lead to broad price increases for furniture in the U.S., dampening consumer demand and compressing industry margins [10][12] 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%-40% of sales derived from new products launched within the last three years [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] - Despite near-term challenges from tariffs and macroeconomic conditions, the company remains optimistic about long-term industry growth drivers [12][24] Other Important Information - The company ended the quarter with a cash balance of $38.6 million and no bank debt, indicating a solid balance sheet [22] - The management has decided to pause on providing forward-looking guidance due to uncertainty regarding the impact of tariffs [23] 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 does the company aim to derive from new products? - The long-term goal is for 30%-40% of sales to come from new products launched within the last three years, with current sales comprising over 50% from new products [33] Question: How does the company view the case goods business moving forward? - The case goods category has been more challenged, but the company is pleased with the quality of new products and believes it will be a critical growth driver [35] Question: What factors contributed to the lower tax rate this quarter? - The lower tax rate was influenced by changes in reserves for uncertain tax positions and higher R&D tax credits, with expectations for a slight increase in the tax rate for the remainder of the year [36]