• Revenue: $114 million, a growth of 6.3% compared to $107.2 million in the prior year quarter.
• Adjusted Operating Margin: 7.3%, marking the eighth consecutive quarter of year-over-year improvement.
• Operating Cash Flow: $12.3 million in the quarter.
• Ending Cash: $22.6 million.
• Net Sales Guidance for Q4: Expected between $109 million and $116 million.
• Gross Margin Guidance for Q4: Expected between 21.0% and 22.0%.
• SG&A Costs Guidance for Q4: Expected between $16.5 million and $17.0 million.
• Free Cash Flow Guidance for Q4: Expected between $4 million and $7 million.
• Capital Expenditures for Q4: Expected between $0.5 million and $1.0 million.

• Warning! GuruFocus has detected 5 Warning Sign with PNR.

Release Date: April 22, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Flexsteel Industries Inc (NASDAQ:FLXS) reported a 6.3% sales growth compared to the prior year quarter, marking the sixth consecutive quarter of year-over-year growth.
• The company achieved an adjusted operating margin of 7.3%, representing the eighth consecutive quarter of year-over-year improvement.
• Flexsteel Industries Inc (NASDAQ:FLXS) generated $12.3 million in operating cash flow and ended the quarter with $22.6 million in cash, highlighting strong cash generation.
• The company continues to see significant success from new product introductions and share gains with large strategic accounts.
• Flexsteel Industries Inc (NASDAQ:FLXS) is expanding its product lineup, including the Zecliner lineup and new case goods, which are contributing to growth.

Negative Points

• The company faces significant uncertainty due to proposed US reciprocal tariffs, particularly affecting products sourced from Vietnam.
• Flexsteel Industries Inc (NASDAQ:FLXS) recorded a $14.1 million non-cash impairment charge related to its leased facility in Mexicali, Mexico.
• There is a risk of short-term demand volatility, with a slowdown in incoming orders and some large order cancellations following tariff announcements.
• The midterm outlook for the US economy and consumer spending is moderately pessimistic, with potential for higher inflation and slower economic growth.
• Tariffs on Vietnam imports could have a dilutive impact on gross margins, and the company has implemented modest tariff surcharges that do not fully offset the 10% tariff.

Q & A Highlights

Q: As the March quarter progressed, did you notice any notable changes month-to-month in terms of order patterns or delivered sales? A: Derek Schmidt, President and Director, noted that March typically sees a slowdown in orders due to seasonality, but year-over-year growth remained consistent. However, following the April 2 tariff announcement, there was a significant slowdown in orders as retailers are in a wait-and-see mode regarding trade discussions.

Q: Do you have a goal for how much revenue you want to derive from new products, especially given the recent tariff announcements? A: Derek Schmidt emphasized that over half of their sales are from new products launched in the last couple of years. Despite external uncertainties, Flexsteel remains committed to driving new product introductions and innovation as core strategies.

Q: Have you seen competitors respond with their own tariff surcharges, and how are these reflected in your guidance? A: Michael Ressler, CFO, confirmed that competitors have implemented surcharges. Flexsteel has also applied modest surcharges on certain product categories. The current 10% Vietnam tariff is assumed in their guidance, with minor dilution expected in operating margins.

Q: Are you accelerating efforts to source from other countries, and how might this affect your gross margins? A: Derek Schmidt stated that Flexsteel is exploring alternative sources in Southeast Asia and other regions. The company aims to optimize its supply chain based on tariff developments. While tariffs could be dilutive to margins, efforts will be made to minimize consumer price impacts.

Q: How are you preparing for potential market share gains amid industry disruptions? A: Derek Schmidt expressed confidence in Flexsteel's preparedness to gain market share despite disruptions. The company is focused on executing its strategies, maintaining strong sales momentum, and leveraging its financial strength to invest in growth opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.