Flexsteel Industries — Fiscal First Quarter 2027 Earnings Summary

Financial Performance:

• Net sales reached $114.0 million for the quarter ended September 30, 2026, a 3.2% increase from $110.4 million in the prior year quarter.
• GAAP operating income was $6.9 million (6.0% of net sales), down from $9.0 million (8.1% of net sales) in the prior year quarter.
• GAAP net income was $5.4 million, or $1.24 per diluted share, compared to $7.3 million, or $1.31 per diluted share, in the prior year quarter.
• Gross margin decreased to 22.0% from 23.5% in the prior year quarter, a 150 basis point decline driven by a 130 basis point unfavorable foreign currency translation impact and inflation.
• Selling, general and administrative (SG&A) expenses increased to 16.0% of net sales from 15.4% in the prior year quarter.
• Effective income tax rate was 21.8% for the current quarter versus 21.9% in the prior year quarter.
• Net cash used in operating activities was $1.5 million, compared to net cash provided by operating activities of $4.1 million in the prior year quarter.
• Capital expenditures were $1.0 million for the quarter.
• The company ended the quarter with $4.4 million in cash and $80.5 million in working capital.
• Availability under the secured line of credit was approximately $29.1 million.

Guidance and Future Outlook:

• For the second quarter of fiscal 2027, the company expects sales growth of 1% to 4% year-over-year, or 3.5% to 6.5% excluding the Homestyles brand exit.
• Second quarter fiscal 2027 sales are forecasted between $119.5 million and $123.0 million.
• Second quarter fiscal 2027 GAAP operating margin is expected to be between 6.5% and 7.0%.
• Management anticipates the operating environment will remain challenging due to consumer confidence issues, affordability constraints, geopolitical uncertainty, and evolving tariff policies.
• Significant drivers of variability in the outlook include consumer demand and logistics and material cost inflation driven by elevated energy prices.

Business Segments and Product Lines:

• Flexsteel branded product sales grew 5.1% year-over-year, increasing by $5.5 million.
• Homestyles ready-to-assemble sales declined 57% year-over-year, decreasing by $1.9 million, as the company exits this category.
• Flexsteel branded casegoods sales remained relatively flat compared to the prior year period.
• Orders increased 5% and ending backlog grew 8.2% versus the prior year period.
• New product introductions included next-generation SixFlex™ seating technology, the Comfort Choice™ program, expansion of the wellness portfolio, Flexsteel Pulse™ immersive sound seating platform, and new offerings in the Flexsteel Statements™ casegoods collection.
• Strategic growth contributors include new product introductions, strategic account share gains, and continued expansion in health and wellness.

Market and Competitive Landscape:

• The company reported its twelfth consecutive quarter of year-over-year sales growth.
• Management noted that ocean transportation rates have nearly doubled over the last six months.
• Industry-wide pressures include sharply higher fuel prices and rising material costs.
• The company is executing cost savings initiatives, productivity improvements, and disciplined product portfolio management to mitigate inflationary headwinds.

Risks and Challenges:

• Foreign currency translation impact related to peso-denominated asset exposure in Mexico resulted in a $0.8 million (70 basis points) unfavorable impact on operating margin.
• Elevated energy prices are driving inflation in logistics and material costs.
• Consumer confidence and affordability constraints continue to weigh on industry demand.
• Geopolitical uncertainty and evolving tariff policies present ongoing risks to costs and demand.
• Forward-looking statements cite risks including supply chain disruptions, litigation, pricing pressures, raw material costs, foreign currency fluctuations, and general economic conditions.

Management Commentary and Tone:

• CEO Derek Schmidt expressed pleasure with the results and continued momentum of growth strategies despite a challenging macroeconomic environment.
• Management highlighted that excluding the foreign currency impact, operating margin was in line with expectations given significant inflationary pressures.
• Schmidt emphasized confidence in the company's future due to progress in strengthening competitive advantages through consumer insights, innovation, and disciplined execution.
• Management stated they are not standing still and are strengthening core capabilities while creating new reasons for consumers and retailers to choose the brand.
• The tone reflected confidence in the ability to continue gaining share and creating sustainable long-term shareholder value despite a difficult external environment.

Other Key Points:

• The company repurchased shares totaling $2.2 million during the quarter.
• Dividends paid totaled $1.1 million in the quarter.
• The company is exiting the Homestyles ready-to-assemble category.
• A conference call and audio webcast were scheduled for October 27, 2026, at 8:00 a.m. Central Time.
• The company maintains a strong balance sheet and disciplined operating model.