Q1 2027 Flexsteel Industries Inc Earnings Call

October 27, 2026

Operator: Good morning, and welcome to the Flexsteel Industries first quarter fiscal year 2027 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Ressler, Chief Financial Officer for Flexsteel Industries. Please go ahead.

Speaker #1: Good morning, and welcome to the FLEXSTEEL INDUSTRIES Q1 FY 2027 earnings conference call. All participants will be enlisted in only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker #1: After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch-tone phone.

Operator: To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Ressler, Chief Financial Officer for Flexsteel Industries. Please go ahead.

Speaker #1: To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Mike Ressler, Chief Financial Officer for FLEXSTEEL INDUSTRIES.

Speaker #1: Please go ahead.

Mike Ressler: Thank you, and welcome to today's call to discuss Flexsteel Industries' first quarter fiscal year 2027 financial results. Our earnings release, which we issued after market close yesterday, Monday, 26 October, is available on the investor relations section of our website at www.flexsteel.com under News and Events. I am here today with Derek Schmidt, President and Chief Executive Officer. On today's call, we will provide prepared remarks, then we will open the call to your questions. Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified using words such as estimate, anticipate, expect, and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Speaker #2: Thank you. And welcome to today's call to discuss FLEXSTEEL INDUSTRIES Q1 FY 2027 financial results. Our earnings release, which we issued after market close yesterday, Monday, October 26, is available on the investor relations section of our website at www.flexsteel.com under news and events.

Speaker #2: I'm here today with Derek Schmidt, President and Chief Executive Officer. On today's call, we will provide prepared remarks and then we will open the call to your questions.

Mike Ressler: Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements, which can be identified using words such as estimate, anticipate, expect, and similar phrases. Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Speaker #2: Before we begin, I would like to remind you that the comments on today's call will include forward-looking statements. Which can be identified using words such as "estimate", "anticipate", "expect", and similar phrases.

Speaker #2: Forward-looking statements, by their nature, involve estimates, projections, goals, forecasts, and assumptions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Mike Ressler: Such risks and uncertainties include, but are not limited to, those that are described in our most recent annual report on Form 10-K, as updated by our subsequent quarterly reports on Form 10-Q, and other SEC filings as applicable. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additionally, we may refer to non-GAAP measures, which are intended to supplement, but not substitute, for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today. With that, I will turn the call over to Derek Schmidt. Derek?

Speaker #2: Such risks and uncertainties include but are not limited to those that are described and are most recent annual report on Form 10-K, as updated by our subsequent quarterly reports on Form 10-Q and other SEC filings as applicable.

Speaker #2: These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. Additionally, we may refer to non-GAAP measures which are intended to supplement but not substitute for the most directly comparable GAAP measures.

Mike Ressler: The press release available on the website contains the financial and other quantitative information to be discussed today. With that, I will turn the call over to Derek Schmidt. Derek?

Speaker #2: The press release available on the website contains a financial and other quantitative information to be discussed today. And with that, I'll turn the call over to Derek Schmidt.

Speaker #2: Derek?

Derek Schmidt: Good morning, and thank you for joining us today. I am pleased to share our Q1 fiscal year 2027 results. Despite a challenging macroeconomic environment and significant inflationary pressures across our supply chain, our team continued to execute well, delivering solid sales growth and profitability while advancing the strategic initiatives that we believe will drive long-term shareholder value. During the quarter, net sales increased 3.2% compared to the prior year toward the upper end of our guidance range and marked our 12th consecutive quarter of year-over-year growth. Excluding the impact of our exit from the Homestyles ready-to-assemble furniture category, sales in our continuing Flexsteel branded business grew approximately 5%. Encouragingly, our growth momentum extends beyond reported sales. Orders increased approximately 5% during the quarter, and our ending backlog grew 8.2% compared to the prior year.

Speaker #3: Good morning. And thank you for joining us today. I'm pleased to share our first quarter fiscal year 2027 results despite a challenging macroeconomic environment and significant inflationary pressures across our supply chain.

Speaker #3: Our team continued to execute well delivering solid sales growth and profitability while advancing the strategic initiatives that we believe will drive long-term shareholder value.

Speaker #3: During the quarter, net sales increased 3.2% compared to the prior year, toward the upper end of our guidance range, and marked our 12th consecutive quarter of year-over-year growth.

Speaker #3: Excluding the impact of our exit from the Homestyles Ready to Assemble Furniture category, sales in our continuing FLEXSTEEL branded business grew approximately 5%. Encouragingly, our growth momentum extends beyond reported sales.

Speaker #3: Orders increased approximately 5% during the quarter, and our ending backlog grew 8.2% compared to the prior year. These trends, combined with the continued performance of our key growth initiatives, reinforce our confidence in the underlying strength of our business.

Derek Schmidt: These trends, combined with the continued performance of our key growth initiatives, reinforce our confidence in the underlying strength of our business. Our growth continues to be driven by several complementary initiatives, including new product introductions, share gains with strategic accounts, and expansion in our health and wellness category. These initiatives are performing well despite continued softness in the broader furniture market, providing further evidence that our investments in consumer insights, innovation, product development, and customer experience are strengthening our competitive position. From a profitability standpoint, our results were solid, although impacted by an unfavorable foreign currency translation loss late in the quarter. Reported GAAP operating margin was approximately 6%, below our guidance range of 6.5% to 7%.

Speaker #3: Our growth continues to be driven by several complementary initiatives, including new product introductions, share gains with strategic accounts, and expansion in our health and wellness category.

Speaker #3: These initiatives are performing well despite continued softness in the broader furniture market, providing further evidence that our investments in consumer insights, innovation, product development, and customer experience are strengthening our competitive position.

Speaker #3: From a profitability standpoint, our results were solid, although impacted by an unfavorable foreign currency translation loss late in the quarter. Reported GAAP operating margin was approximately 6%, below our guidance range of 6.5 to 7%.

Derek Schmidt: However, our results included approximately $800,000 of unfavorable foreign currency impact related to the strengthening US dollar against the Mexican peso. Excluding the 70 basis point impact, operating margin was solid and in line with our expectations for the quarter. Given the significant inflationary pressures we are experiencing, I am encouraged by our underlying operating performance and ability to largely offset these cost headwinds to maintain healthy margins. Ocean transportation rates have nearly doubled over the past six months, while domestic transportation costs have increased substantially with surging diesel fuel prices. These pressures, along with higher costs for materials and sourced products, are creating difficult operating conditions for our industry. Our teams continue to respond to these challenges with urgency and discipline, identifying cost savings opportunities, improving productivity, managing our product portfolio, and implementing modest pricing actions to mitigate these pressures.

Speaker #3: However, our results included approximately 800,000 dollars of unfavorable foreign currency impact related to the strengthening US dollar against the Mexican peso. Excluding the 70 basis point impact, operating margin was solid, and in line with our expectations for the quarter.

Speaker #3: Given the significant inflationary pressures we're experiencing, I am encouraged by our underlying operating performance and ability to largely offset these costs headwinds to maintain healthy margins.

Speaker #3: Ocean transportation rates have nearly doubled over the past six months, while domestic transportation costs have increased substantially, with surging diesel fuel prices. These pressures, along with higher costs for materials and source products, are creating difficult operating conditions for our industry.

Speaker #3: Our teams continue to respond to these challenges, with urgency and discipline identifying cost savings opportunities, improving productivity, managing our product portfolio, and implementing modest pricing actions to mitigate these pressures.

Derek Schmidt: While we have offset a portion of the inflationary impact, these cost pressures are expected to remain a meaningful near-term challenge. Looking ahead, our outlook for the broader industry remains measured. Consumer confidence continues to be weak, and households are increasingly selective about discretionary purchases as inflation and higher energy costs consume a greater share of budgets. Housing affordability remains challenging, and rising mortgage rates continue to constrain housing turnover, an important driver of furniture demand. Geopolitical uncertainty, particularly the ongoing conflict in the Middle East, continues to create volatility in energy and transportation markets. In addition, tariff policy remains a significant source of uncertainty, including the scheduled increase in Section 232 tariffs on upholstered furniture from 25% to 30% on 1 January 2027. These factors could continue to pressure both industry demand and profitability in the near term, and we recognize the importance of remaining agile as conditions evolve.

Speaker #3: While we've offset a portion of the inflationary impact, these cost pressures are expected to remain a meaningful near-term challenge. Looking ahead, our outlook for the broader industry remains measured.

Speaker #3: Consumer confidence continues to be weak, and households are increasingly selective about discretionary purchases, as inflation and higher energy costs consume a greater share of budgets.

Speaker #3: Housing affordability remains challenging, and rising mortgage rates continue to constrain housing turnover, an important driver of furniture demand. Geopolitical uncertainty, particularly the ongoing conflict in the Middle East, continues to create volatility in energy and transportation markets.

Speaker #3: In addition, tariff policy remains a significant source of uncertainty, including the scheduled increase in Section 232 tariffs on upholstered furniture from 25 to 30 percent on January 1, 2027.

Speaker #3: These factors could continue to pressure both industry demand and profitability in the near term, and we recognize the importance of remaining agile as conditions evolve.

Derek Schmidt: However, what gives me the greatest confidence in Flexsteel's future is not an expectation that the external environment will improve. It is the progress we are making strengthening the capabilities that allow us to compete more effectively in any environment. Over the past several years, we have invested deliberately in becoming a more consumer-driven and innovation-led organization. What I am particularly encouraged by today is how these investments are beginning to work together as an integrated system. We are listening more closely to consumers, translating those insights into meaningful innovation, sharpening our product platforms, and bringing differentiated products to market with stronger marketing and customer support. Our recent fall High Point Market provided several compelling examples of that progress. First, we are strengthening our core made-to-order seating business through consumer-led innovation. Our research continues to reinforce that comfort, quality, and durability are among the most important factors influencing furniture purchases.

Speaker #3: However, what gives me the greatest confidence in FLEXSTEEL's future is not an expectation that the external environment will improve, it's the progress we're making strengthening the capabilities that allow us to compete more effectively in any environment.

Speaker #3: Over the past several years, we've invested deliberately in becoming a more consumer-driven, an innovation-led organization. And what I'm particularly encouraged by today is how these investments are beginning to work together as an integrated system.

Speaker #3: We're listing more closely to consumers, translating those insights into meaningful innovation, sharpening our product platforms, and bringing differentiated products to market with stronger marketing and customer support.

Speaker #3: Our recent fall high-point furniture market provided several compelling examples of that progress. First, we're strengthening our core made-to-order seating business through consumer-led innovation. Our research continues to reinforce that comfort, quality, and durability are among the most important factors influencing furniture purchases.

Derek Schmidt: Consumers value personalization, but they also want the shopping experience to be simple and intuitive. These insights directly inform the introduction of our new 6000 Series, featuring SixFlex, the sixth generation of our patented Blue Steel Spring technology, and our new Comfort Choice program. SixFlex advances the comfort and performance of our signature seating technology, while Comfort Choice allows consumers to select from three distinct comfort levels without adding unnecessary complexity to the buying experience. What excites me about this launch is that we are taking one of Flexsteel's most enduring competitive advantages, comfort and quality, and making it even more relevant to today's consumer. It is a strong example of how consumer insights and innovation can reinforce the core of our business. The response from our retail partners has been overwhelmingly positive to this new introduction, which provides us optimism about accelerated growth in this important category.

Speaker #3: Consumers value personalization, but they also want the shopping experience to be simple, and intuitive. These insights directly inform the introduction of our new 6,000 series, featuring six FLEX, the sixth generation of our patented blue steel spring technology, and our new comfort choice program.

Speaker #3: Six FLEX advances the comfort and performance of our signature seating technology, while comfort choice allows consumers to select from three distinct comfort levels, without adding unnecessary complexity to the buying experience.

Speaker #3: What excites me about this launch is that we're taking on a FLEXSTEEL's most enduring competitive advantages. Comfort and quality and making it even more relevant to today's consumer.

Speaker #3: It's a strong example of how consumer insights and innovation can reinforce the core of our business. The response from our retail partners has been overwhelmingly positive to this new introduction, which provides us optimism about accelerated growth in this important category.

Derek Schmidt: Second, we are significantly expanding our opportunity in health and wellness. Our consumer research has identified attractive opportunities across four distinct wellness needs: sleep, care, restore, and assist. Building on the success of Zecliner in sleep, we are expanding into care, specifically nursery seating, through our new Embrace brand. We are also expanding into restorative wellness through our Zen collection, and we are expanding our assist, or mobility and independence solutions, through our new Rise collection. Together, these four wellness platforms broaden our opportunity to serve consumers across different life stages, from young families to aging adults, with products designed around meaningful needs in the home. We believe our consumer-led approach positions Flexsteel to participate in attractive new categories while building on our long-standing strengths in comfort, ergonomics, and durability. Third, we are introducing differentiated innovation that creates new reasons for consumers to choose Flexsteel. Our Pulse Immersive Seating platform is a strong example.

Speaker #3: Second, we're significantly expanding our opportunity in health and wellness. Our consumer research has identified attractive opportunities across four distinct wellness needs. Sleep, care, restore, and assist.

Speaker #3: Building on the success of Z-Cliner in sleep, we're expanding into care, specifically nursery seating, through our new Embrace brand. We're also expanding into restorative wellness through our Zen collection, and we're expanding our Assist or mobility and independent solutions through our new Rise collection.

Speaker #3: Together, these four wellness platforms broaden our opportunity to serve consumers across different life stages. From young families to aging adults, with products designed around meaningful needs in the home.

Speaker #3: We believe our consumer-led approach positions FLEXSTEEL to participate in attractive new categories while building on our longstanding strengths in comfort, ergonomics, and durability. Third, we're introducing differentiated innovation that creates new reasons for consumers to choose FLEXSTEEL.

Speaker #3: Our pulse-immersive seating platform is a strong example. With the introduction of Stratus, our second-generation of immersive seating, we're elevating the home entertainment experience to a whole new level.

Derek Schmidt: With the introduction of Stratus, our second generation of immersive seating, we are elevating the home entertainment experience to a whole new level. By leveraging new innovation in advanced sound and sensory technology, we are delivering the first fully Dolby Atmos-certified solution that spans both the soundbar and the sound system integrated into the furniture, and in the process, setting a new bar for a truly amazing immersive seating experience. We are also expanding our partnership with nationally recognized broadcaster Dan Patrick to build awareness and consumer demand for Pulse following our work together supporting Zecliner. This combination of meaningful product innovation and targeted marketing is an important part of how we are working to strengthen our brand and drive consumer traffic to our retail partners. Finally, we are continuing to strengthen our position in case goods.

Speaker #3: By leveraging new innovation and advanced sound and sensory technology, we're delivering the first fully Dolby Atmos certified solution that spans both the soundbar and the sound system integrated into the furniture.

Speaker #3: And in the process, setting a new bar for a truly amazing immersive seating experience. We're also expanding our partnership with nationally recognized broadcaster Dan Patrick to build awareness and consumer demand for Pulse, following our work together supporting Z-Cliner.

Speaker #3: This combination of meaningful product innovation and targeted marketing is an important part of how we're working to strengthen our brand and drive consumer traffic to our retail partners.

Speaker #3: Finally, we're continuing to strengthen our position in casemates. Our statements collection is benefiting from deeper consumer insights into how people shop for bedroom, dining, and occasional furniture.

Derek Schmidt: Our Statements collection is benefiting from deeper consumer insights into how people shop for bedroom, dining, and occasional furniture. We are focused on quality, coordinated designs, and functional features that simplify purchasing decisions while helping retailers present compelling whole home solutions. In summary, while these four initiatives span different product categories, they share a common foundation: understanding consumer needs, developing differentiated solutions, and executing effectively with our retail partners. That is the larger strategic point I want to emphasize. Flexsteel is becoming a more consumer-driven and innovation-led company, supported by increasingly disciplined execution. These capabilities are not operating independently. They are reinforcing one another, creating a stronger foundation for sustainable growth and market share gains. We recognize that the external environment may remain challenging. Consumer demand could continue to be uneven, and inflationary and tariff-related pressures may create additional volatility in our financial performance.

Speaker #3: We're focused on quality, coordinated designs, and functional features that simplify purchasing decisions while helping retailers present compelling, whole-home solutions. So in summary, while these four initiatives span different product categories, they share a common foundation: understanding consumer needs, developing differentiated solutions, and executing effectively with our retail partners.

Speaker #3: And that's the larger strategic point I want to emphasize. FLEXSTEEL is becoming a more consumer-driven and innovation-led company. Supported by increasingly disciplined execution. These capabilities are not operating independently.

Speaker #3: They are reinforcing one another, creating a stronger foundation for sustainable growth and market share gains. We recognize that the external environment may remain challenging.

Speaker #3: Consumer demand could continue to be uneven, and inflationary and tariff-related pressures may create additional volatility in our financial performance. But even in challenging markets, companies are rewarded that are focused, differentiated, and disciplined.

Derek Schmidt: Even in challenging markets, companies are rewarded that are focused, differentiated, and disciplined. They reward companies that understand their consumers, support their customers, and consistently bring compelling products to market. That is exactly what we are working to do at Flexsteel. We are not standing still in a difficult environment. We are strengthening the core capabilities that have made Flexsteel a trusted brand for generations while creating new reasons for consumers and retailers to choose us. Combined with our strong balance sheet, disciplined operating model, and continued strategic investments, these capabilities give me confidence in our ability to navigate near-term challenges and drive long-term profitable growth and shareholder value. With that, I will turn the call over to Mike, who will provide additional details on our Q1 financial performance and outlook. Mike?

Speaker #3: They reward companies that understand their consumers, support their customers, and consistently bring compelling products to market. And that's exactly what we're working to do at FLEXSTEEL.

Speaker #3: We're not standing still in a difficult environment. We're strengthening the core capabilities that have made it FLEXSTEEL a trusted brand for generations. While creating new reasons for consumers and retailers to choose us.

Speaker #3: Combined with our strong balance sheet, disciplined operating model, and continued strategic investments, these capabilities give me confidence in our ability to navigate near-term challenges and drive long-term profitable growth in shareholder value.

Speaker #3: With that, I'll turn the call over to Mike, who will provide additional details on our first quarter financial performance, and outlook. Mike?

Mike Ressler: Thanks, Derek. For the Q1, net sales were $114.0 million, or growth of 3.2% compared to net sales of $110.4 million in the prior year quarter. As Derek mentioned, this marks our 12th consecutive quarter of sales growth compared to prior year periods and near the upper end of our guidance range of 1% to 4% growth. The increase was primarily driven by soft seating products, partially offset by lower sales of our Homestyles branded ready-to-assemble category, which we are exiting. Sales of case goods were relatively flat versus the prior year quarter. Sales order backlog at the end of the period was $77.7 million, which was up roughly 8% versus the prior year ending backlog. From a profit perspective, the company delivered GAAP operating income of $6.9 million, or 6.0% of sales in the Q1.

Speaker #2: Thanks, Derek. For the first quarter, net sales were $114.0 million. Our growth of 3.2% compared to net sales of $110.4 million in the prior year quarter.

Speaker #2: As Derek mentioned, this marks our 12th consecutive quarter of sales growth compared to prior year periods, and near the upper end of our guidance range of 1 to 4 percent growth.

Speaker #2: The increase was primarily driven by soft seating products partially offset by lower sales of our home styles branded ready-to-assemble category, which we are exiting.

Speaker #2: Sales of casemates were relatively flat versus the prior year quarter. Sales of our backlog at the end of the period was 77.7 million dollars, which was up roughly 8% versus the prior year ending backlog.

Speaker #2: From a profit perspective, the company delivered gap operating income of 6.9 million dollars, or 6.0% of sales in the first quarter. The gap operating income included a 0.8 million or 70 basis point unfavorable impact from foreign currency translation per peso denominated Mexico assets resulting from the significant strengthening of the US dollar in the quarter.

Mike Ressler: The GAAP operating income included a $0.8 million or 70 basis point unfavorable impact from foreign currency translation of our peso-denominated Mexico assets, resulting from the significant strengthening of the US dollar in the quarter. Excluding the impact of the foreign currency translation loss, results were in line with expectations for the quarter. Gross profit margin for the quarter was 22.0% compared to 23.5% in the prior year quarter. The decrease was primarily driven by a 130 basis point negative impact from foreign currency translation, as the current quarter included a translation loss of $0.8 million, while the prior year quarter included a translation gain of $0.7 million.

Speaker #2: Excluding the impact of the foreign currency translation loss, results were in line with expectations for the quarter. Gross profit margin for the quarter was 22.0% compared to 23.5% in the prior year quarter.

Speaker #2: The decrease was primarily driven by a 130 basis point negative impact from foreign currency translation as the current quarter included a translation loss of 0.8 million dollars while the prior year quarter included a translation gain of 0.7 million dollars.

Mike Ressler: Inflation in ocean freight, domestic transportation, raw materials, and source finished goods driven by higher energy prices was mostly offset by cost savings, product portfolio management, and modest price increases in the quarter. SG&A expenses for the quarter were $18.2 million, or 16.0% of sales, versus $17.0 million, or 15.4% of sales in the prior year quarter. The increase was driven by investments in consumer insights, innovation, new product, and marketing and demand generation to execute our growth strategy and strengthen our operating model. Moving to the balance sheet and statement of cash flows. The company ended the quarter with a cash balance of $4.4 million, working capital of $80.5 million, and no bank debt. Moving to the outlook.

Speaker #2: Inflation in ocean freight, domestic transportation, raw materials, and source finished goods driven by higher energy prices was mostly offset by cost savings, product portfolio management, and modest price increases in the quarter.

Speaker #2: SG&A expenses for the quarter were 18.2 million dollars or 16.0% of sales, versus 17.0 million dollars or 15.4% of sales in the prior year quarter.

Speaker #2: The increase was driven by investments in consumer insights, innovation, new product, and marketing and demand generation to execute our growth strategy and strengthen our operating model.

Speaker #2: Moving to the balance sheet and statement of cash flows. The company ended the quarter with a cash balance of 4.4 million dollars working capital of 80.5 million dollars and no bank debt.

Speaker #2: Moving to the outlook. We project sales of 119.5 million to 123.0 million dollars in the quarter or growth of 1 to 4 percent. Led by continued growth in soft seating products, partially offset by a decline in home styles branded ready-to-assemble products.

Mike Ressler: We project sales of $119.5 million to $123.0 million in the quarter, or growth of 1% to 4%, led by continued growth in soft seating products, partially offset by a decline in Homestyles-branded, ready-to-assemble products. The key determinant to our top-line forecast with the largest variability will be consumer demand. From a profit perspective, we project operating margin in the range of 6.5% to 7.0% in the quarter. Relative to Q1, we expect volume leverage, cost savings initiatives, product portfolio management, and modest price increases to largely offset incremental energy-driven inflation we are experiencing within ocean freight, domestic transportation, and materials. With that, I'll turn the call back over to Derek to share his closing perspectives.

Speaker #2: The key determinant to our top-line forecast with the largest variability will be consumer demand. From a profit perspective, we project operating margin in the range of 6.5 to 7.0 percent in the quarter.

Speaker #2: Relative to first quarter, we expect volume leverage, cost savings initiatives, product portfolio management, and modest price increases to largely offset incremental energy-driven inflation we are experiencing within ocean freight, domestic transportation, and materials.

Speaker #2: With that, I'll turn the call back over to Derek to share his closing perspectives.

Derek Schmidt: Thanks, Mike. As we look ahead, we recognize that the external environment remains challenging. Consumer confidence continues to be pressured by inflation and economic uncertainty, while elevated transportation and material costs, geopolitical developments, and evolving tariff policies create additional risks for our industry. While we can't control these external forces, we can control how we respond. I believe our Q1 results demonstrate that we're responding effectively. We delivered another quarter of sales growth, strengthened our order backlog, and continued to gain traction across our key growth initiatives, all while navigating significant cost pressures. These results reinforce my confidence in both our strategy and the capabilities we've built to execute it. What excites me most is the progress we're making towards becoming a more consumer-driven and innovation-led company.

Speaker #3: Thanks, Mike. As we look ahead, we recognize that the external environment remains challenging. Consumer confidence continues to be pressured by inflation and economic uncertainty, while elevated transportation and material cost, geopolitical developments, and evolving tariff policies create additional risks for our industry.

Speaker #3: While we can't control these external forces, we can control how we respond. And I believe our first quarter results demonstrate that we're responding effectively.

Speaker #3: We delivered another quarter of sales growth, strengthened our order backlog, and continued to gain traction across our key growth initiatives. All while navigating significant cost pressures.

Speaker #3: These results reinforce my confidence in both our strategy and the capabilities we've built to execute it. What excites me most is the progress we're making towards becoming a more consumer-driven, and innovation-led company.

Derek Schmidt: Our investments in consumer insights, product development, innovation, and marketing are increasingly working together to create differentiated products, strengthen our customer partnerships, and generate new opportunities for growth. We're not relying on a recovery in industry demand to drive our success. We're focused on creating our own opportunities through better execution, stronger innovation, and continued market share gains. While we'll remain financially disciplined and agile in managing near-term challenges, we're equally committed to investing in the capabilities that will strengthen our competitive position and create sustainable long-term value. We believe our strong balance sheet, resilient operating model, and increasingly differentiated growth strategy position Flexsteel well to navigate the uncertainties ahead while continuing to build a stronger business for our customers and shareholders. With that, we'll open the call to your questions. Operator?

Speaker #3: Our investments in consumer insights, product development, innovation, and marketing are increasingly working together to create differentiated products, strengthen our customer partnerships, and generate new opportunities for growth.

Speaker #3: We're not relying on a recovery in industry demand to drive our success. We're focused on creating our own opportunities through better execution, stronger innovation, and continued market share gains.

Speaker #3: And while we'll remain financially disciplined and agile in managing near-term challenges, we're equally committed to investing in the capabilities that will strengthen our competitive position and create sustainable long-term value.

Speaker #3: We believe our strong balance sheet, resilient operating model, and increasingly differentiated growth strategy position FLEXSTEEL well to navigate the uncertainties ahead while continuing to build a stronger business for our customers and shareholders.

Speaker #3: With that, we'll open the call to your questions. Operator?

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Anthony Lebiedzinski from Sidoti. Please go ahead.

Speaker #1: Thank you. We'll now begin the question and answer session. That's a good question. You may press star then one on your touchstone phone. If you're using the speakerphone, please pick up your handset before pressing the keys.

Speaker #1: To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. And our first question comes from Anthony Liebezinski from Sudoto.

Speaker #1: Please go ahead.

Anthony Lebiedzinski: Good morning, everyone. Thanks for taking the questions, and certainly nice to see another quarter of revenue growth here in your first fiscal quarter. Just curious, for your core Flexsteel branded products, can you just talk about overall pricing versus unit volumes, what you saw in Q1?

Speaker #4: Good morning, everyone. Yeah, thanks for taking the questions. And certainly nice to see another quarter of revenue growth here in your first fiscal quarter.

Speaker #4: So just curious, you know, for your core FLEXSTEEL branded products, can you just talk about overall pricing versus unit volumes, what you saw in one queue?

Mike Ressler: Good morning, Anthony. I would say when you look at pricing on average versus the prior year, I would say it is up about 10%. Clearly, there has been a lot of changes with 25% tariff on upholstered furniture. So, 10% increase overall on average. What is encouraging, though, is we did actually have meaningful unit volume growth within several of our key growth initiatives, including penetration and growth with strategic accounts. We have seen unit volume growth across several new health and wellness category items. Also, we are seeing nice unit volume with our new immersive sound solutions we have introduced.

Speaker #5: The more than Anthony. Yeah, I would say when you look at pricing kind of on average versus the prior year, I would say it's up about 10 percent.

Speaker #5: Clearly, there's been a lot of changes with 25 percent tariff on upholstered furniture. So you, you know, 10 percent increase overall on average. What, what's encouraging though is we did actually have meaningful unit volume growth.

Speaker #5: Within several of our key growth initiatives, including you know, penetration and growth with strategic accounts, we've seen unit volume growth across several new health and wellness category items, and then also we're seeing nice unit volume with our new immersive sound solutions we've introduced.

Anthony Lebiedzinski: Got it. That sounds pretty good. Okay. I know you touched on this a little bit here, but obviously with the higher ocean freight costs and domestic transportation costs on the rise, you also talked about material costs as well. It sounds like you are looking to do some price increases. Can you perhaps share more details as to the extent of those price increases? You touched on the Section 232 tariffs. Will there be another price increase in January if that goes through as expected?

Speaker #4: Got it. That sounds pretty good. Okay. And then so I know you touched on this a little bit here, but you know, obviously with the higher ocean freight costs and domestic transportation costs on the rise, you also talked about material costs as well.

Speaker #4: It sounds like you're looking to do some price increases. Can you perhaps share more details as to the extent of those price increases and then you touched on the section 232 tariffs will there be another price increase in January if that goes through as expected?

Mike Ressler: Yeah, Anthony, let me hit those points real quick. There's certainly been meaningful cost pressures on the business starting back to before the conflict in the Middle East. We've seen ocean freight rates nearly double what they were six months ago. Certainly, everyone pays attention to what's going on with diesel, and a lot of that's trickling through the supply chain into a lot of the raw material input costs, et cetera. Obviously, we take a balanced approach in terms of what we can do to mitigate that. Certainly, pricing is one of the levers, and we do that, but we're also mindful of the sensitivity around pricing and wanting to be competitive in the market. We also are hyper-focused on delivering cost savings and productivity improvement initiatives to get to what we think is the right amount.

Speaker #5: Yeah, Anthony, let me let me hit those points real quick. So yeah, there's certainly been meaningful cost pressures on the business starting back to, you know, kind of before the conflict in the Middle East.

Speaker #5: We've seen ocean freight rates you know, nearly double what they were six months ago. Certainly everyone pays attention to what's going on with diesel and a lot of that's trickling through those supply chain and into you know, a lot of the raw material input costs, et cetera.

Speaker #5: Obviously, we take a we take a balanced approach in terms of what we can do to mitigate that. Certainly pricing is one of the levers and and and we do that, but we're also mindful of you know, the sensitivity around pricing and wanting to be competitive in the market.

Speaker #5: And we also you know, are hyper-focused on delivering cost savings and productivity improvement initiatives to get to you know, kind of what we think is the right the right amount.

Mike Ressler: You can expect somewhere in the range of probably a 2% to 3% price adjustment that we're looking at taking here on average. As it relates to-

Speaker #5: And you could you know, expect somewhere in the range of probably a 2 to 3 percent kind of price adjustment that we're looking at taking here on average.

Speaker #5: As it relates to. You know, tariffs going go ahead.

Anthony Lebiedzinski: That's-

Mike Ressler: tariffs going Go ahead.

Anthony Lebiedzinski: No, go ahead. Sorry.

Speaker #4: No, go ahead. Sorry.

Mike Ressler: Yeah, as it relates to your question on Section 232 tariffs, which are scheduled to go from 25% to 30% here 1 January, obviously, we have been planning around multiple scenarios there. Certainly, we will approach it like we have done other cost pressures we have in terms of driving productivity and cost savings. Obviously, we will need to look at pricing as a lever as well, which we would expect it to be kind of an industry-wide event if the rates were to go up to 30%.

Speaker #5: Yeah, and as it relates to your question on section 232 tariffs with your scheduled to go from 25 to 30 percent here January 1, obviously we you know, we've been planning around multiple scenarios there.

Speaker #5: And certainly we'll approach it like we've done you know, other cost pressures we have. In terms of you know, driving productivity and cost savings, but obviously we'll need to look at pricing as a lever as well, which you know, we would expect it to be kind of an industry-wide you know, event if that was to if it was to if the rates were to go up to 30 percent.

Anthony Lebiedzinski: Understood. Okay. In terms of the cost savings initiatives and productivity improvements, is it possible if you could provide some more details as to what you are looking to do and what impact on margins this could have as you do some of these things?

Speaker #4: Understood. Okay. And then you know, in terms of the cost savings initiatives and productivity improvements, is it possible if you could provide some more details as to what you're looking to do and what impact or margins this could have as you do some of these things?

Mike Ressler: Yeah. I guess, the way we look at it, Anthony, is we look at cost savings and productivity improvements across the entire supply chain. We also focus on optimization of our product portfolio and driving demand to more profitable products. What I would tell you is, we are looking at using it to largely offset a significant amount of cost headwinds. Just to give you an example, the incremental inflation in this quarter was probably somewhere in the $1.5 to $2 million range, and we would expect it to be that level of kind of incremental increase in Q2.

Speaker #5: Yeah, I guess you know, the way we look at it, Anthony, is we look at cost savings and productivity improvements across the entire supply chain.

Speaker #5: And we also focus on you know, optimization of our product portfolio and driving demand to you know, more profitable products. What I would tell you is you know, we're looking at using it to largely offset a significant amount of cost headwinds.

Speaker #5: Just to give you an example, the inflation that we you know, incurred incremental inflation in this quarter was probably somewhere in the 1 and a half to 2 million dollar range.

Speaker #5: And we would expect it to be that level of kind of incremental increase in Q2.

Derek Schmidt: Maybe, Anthony, just to add on a little bit of color to Mike's point. If you are looking for specific examples of cost savings, we have got a phenomenal team down in our Juárez operations. They continue to redesign the flow in our plants, drive labor productivity. I think we have talked to you several times about all of our efforts around platforming. Majority of certainly our domestic manufactured products now that we are coming out with are all platformed. Again, less parts, more commonization. So we are seeing productivity and a better margin profile for those. We continue to align ourselves from a logistical standpoint with the best partners possible, driving economies of scale and scope. I think those three areas would probably be the most meaningful in terms of where we are deriving our cost savings here in fiscal year 2027.

Speaker #3: I mean, maybe Anthony, just to add on a little bit of color to Mike's point. I mean, if you're looking for specific examples of cost savings I mean, we've got a phenomenal team down in our RORAs operations.

Speaker #3: They continue to redesign the flow in our plants, drive labor productivity. I think we've talked to you several times about all of our efforts around platforming majority of our certainly our domestic manufactured products now that we're coming out with are all platformed.

Speaker #3: So again, less parts, more commonization, so we're seeing productivity and a better margin profile for those. And then we continue to align ourselves you know, from a logistical standpoint with the best partners possible driving economies of scale and scope.

Speaker #3: So I think those three areas would probably be the most meaningful in terms of where we're driving our cost savings here in fiscal year 27.

Anthony Lebiedzinski: That's very helpful. Thanks. Lastly for me, looking at just the cash flow statement, cash from operations was slightly negative in the quarter. Was this mostly timing issues with some of the items there? Do you think this will reverse somewhat in the next quarter or two? The second part to that question would be if you have any updated thoughts on capital allocation after you did the big share buyback in April.

Speaker #4: That's very helpful. Yes, thanks. And then lastly for me, I guess you know, so looking at just the cash flow statement, so cash from operations was slightly negative.

Speaker #4: In the quarter, was this mostly you know, timing issues with some of the items there and the do you think this will reverse somewhat in the next quarter or two?

Speaker #4: And just I guess you know, second part to that question would be if there if you have any updated thoughts on capital allocation after you did the big share buyback in April.

Mike Ressler: Anthony, Q1 is a typical quarter where we have heavy outflows. We have employee compensation payouts. We also have some of our larger software agreements and insurance contracts get paid out in Q1. So it's pretty normal, seasonal type of activity. We would expect positive cash flow generation moving forward in the future quarters. As far as capital allocation goes, our strategy is consistent with what we've communicated in the past. We want to maintain a strong balance sheet, maintain financial flexibility to operate in a challenging environment. We'll certainly fund capital projects that drive productivity, evaluate opportunities to reinvest in the business where there's attractive returns. Then certainly, as we've demonstrated, we'll return capital to shareholders in a responsible manner.

Speaker #5: Anthony, so Q1 is a typical quarter where we have heavy outflows. We have you know, employee compensation payouts. We also have some of our larger you know, software software agreements and and insurance contracts get paid out in Q1.

Speaker #5: So it's pretty normal. Seasonal type of activity. And we would expect positive cash flow generation here on moving forward in the future quarters. As far as capital allocation goes, our you know, our strategy is you know, consistent with what we've communicated in the past.

Speaker #5: You know, we want to maintain a strong balance sheet, maintain financial flexibility to operate in a challenging environment. We're certainly fund you know, capital projects that drive productivity.

Speaker #5: Evaluate opportunities to reinvest in the business where there's attractive returns. And then certainly as we've demonstrated, we'll return capital to shareholders in a responsible manner.

Anthony Lebiedzinski: Understood. Thank you very much, and best of luck.

Speaker #4: Understood. Thank you very much and best of luck.

Derek Schmidt: Thanks, Anthony.

Mike Ressler: Anthony.

Speaker #3: Thanks, Anthony.

Speaker #5: Thanks, Anthony.

Operator: Again, if you have a question, please press star then one. There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Derek Schmidt for any closing remarks.

Speaker #1: Again, if you have a question, please press star, then 1. There are no more questions in the queue. This concludes our question and answer session.

Speaker #1: I'd like to turn the conference back over to Derek Schmidt for any closing remarks.

Derek Schmidt: Thank you. In closing, I want to thank all of our Flexsteel employees for their continued hard work, dedication, and commitment to excellence. Our Q1 results reflect the strength of our team and the progress we are making in executing our strategy, even in a challenging operating environment. I want to thank all of you for joining us today and for your continued interest in Flexsteel, and we look forward to updating you on our progress next quarter. Thanks again.

Speaker #3: Thank you. In closing, I want to thank all of our FLEXSTEEL employees for their continued hard work, dedication, and commitment to excellence. Our first quarter results reflect the strength of our team and the progress we're making in executing our strategy, even in challenging even in a challenging operating environment.

Speaker #3: I want to thank all of you for joining us today and for your continued interest in FLEXSTEEL. And we look forward to updating you on our progress next quarter.

Speaker #3: Thanks again.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.