Flexsteel Industries, Inc. Q1 FY2026 earnings call

• Delivered 6.2% sales growth, eighth consecutive quarter of year-over-year growth. Operating margin was 8.1%, up 230 basis points from prior year. - Industry demand is lackluster due to macroeconomic conditions, but growth strategies including new products and market initiatives are working. - New Section 232 tariffs on imported furniture pose risk; company has taken pricing surcharges and is evaluating cost reduction and supply chain alternatives. - Introducing 26 new product groups and 226 unique SKUs at upcoming High Point Furniture Market, with focus on consumer insights, innovation, and marketing to drive growth.

First quarter net sales were $110.4 million, representing a 6.2% growth compared to the prior year quarter of $104 million. This marks the eighth consecutive quarter of year-over-year growth. The increase was primarily driven by Source Sauce Seating products, partially offset by lower unit volume in made-to-order soft seating products and Home Styles branded ready-to-assemble category. GAAP operating income was $9 million, which is 8.1% of sales in the first quarter, exceeding the guidance range due to sales growth leverage and favorable foreign currency translation.

• Paused providing forward-looking guidance due to uncertainty around tariff impact. - Anticipates near-term adverse impact on demand and margins from tariff change and pricing response, but confident in mid to long-term profitable growth strategies.

• Tariffs on imported furniture, including new Section 232 tariffs on timber, lumber, and upholstered furniture, which will impact cost and demand. - Weak housing market and shaky consumer confidence acting as headwinds for the industry near term.

Q: Could you provide more details on the trends seen from early July through September, especially around Labor Day?

A: Weekly store traffic and sales were very volatile; weeks leading up to Labor Day were weak, week after was strong, then dropped again. Attributed to tariff uncertainty and macro environment uncertainty.

Q: Can you comment on the level of tariff surcharges and their impact on sales and gross margins?

A: On in-stock source business, surcharge increased from 8.5% to 15% to cover eventual 30% tariff; made-to-order business out of Juarez facilities also has 15% surcharge. Expect some demand decline across industry.

Q: Any goal for case goods business growth?

A: Have internal goals but hesitant to share publicly; case goods is a large category and new products are well-positioned for growth.

Q: Tax rate lower than expected, any details and outlook?

A: Discrete items like change in reserve for uncertain tax positions, higher R&D tax credit, lower foreign taxes in quarter; expect rate to be a couple hundred basis points higher for remainder of year.

Q: Quantify magnitude of price increases vs competitors and dynamics of USMCA compliant products under new tariffs?

A: Source products surcharge going to 15%, competitors going as high as 21%-25%. USMCA compliant products no longer exempt under new Section 232 tariffs; hope for exemption but currently no.