Flexsteel Industries, Inc. Reports Strong Fiscal Second Quarter 2025 Results

Flexsteel Industries, Inc. (“Flexsteel” or the “Company”), one of the largest manufacturers, importers, and marketers of residential furniture products in the United States, reported second quarter fiscal 2025 results.

Key Results for the Second Quarter Ended December 31, 2024

• Net sales for the quarter of $108.5 million compared to $100.1 million in the prior year quarter, an increase of 8.4% and fifth consecutive quarter of year-over-year sales growth.
• Pre-tax gain of $5.0 million from sale of former manufacturing facility in Dublin, GA.
• GAAP operating income of $11.7 million or 10.7% of net sales compared to $4.6 million or 4.6% of net sales in the prior year quarter.
  • Adjusted operating income of $6.7 million or 6.1% of net sales for the second quarter compared to $4.6 million or 4.6% of net sales in the prior year quarter.
• GAAP net income per diluted share of $1.62 for the current quarter compared to $0.57 in the prior year quarter.
  • Adjusted net income per diluted share of $0.95 for the quarter compared to $0.57 in the prior year quarter.
• Generated $6.7 million of cash from operations in the quarter and paid off all outstanding borrowings on line of credit.

GAAP to non-GAAP reconciliations follow the financial statements in this press release

Management Commentary

“We are competing well and gaining share in a challenging business environment,” said Derek Schmidt, President & Chief Executive Officer of Flexsteel Industries, Inc. “We continued our strong momentum from the first quarter, delivering sales growth of 8.4 percent compared to the prior year quarter, which represents our fifth consecutive quarter of mid-single to low-double digit year-over-year growth. I’m especially encouraged because our growth was broad-based. We solidly grew in our core markets while simultaneously delivering growth in all our new and expanded market initiatives. Additionally, we continue to expand our operating margin and deliver strong positive free cash flow which has allowed us to pay off our remaining bank debt and begin accumulating cash.”

Mr. Schmidt continues, “While overall industry demand remains soft, many of our retailer partners were encouraged by improved traffic trends and sales close rates during the recent holiday season, which provides optimism that demand declines may have bottomed and the industry could be positioned to start growing again, albeit modestly, in calendar 2025. As we’ve demonstrated over the past 15 months, we can deliver attractive profitable growth and gain share even in challenging industry conditions. Given our confidence in continuing our strong execution, we are increasing the midpoint of our sales guidance range for fiscal year 2025.”

Mr. Schmidt concludes, “In addition to our improved sales outlook, we were also anticipating continued improvement in our operating margin and free cash flow for the remainder of the fiscal year, but the executive orders announced this weekend to implement 25% tariffs on Mexico and Canada introduced significant uncertainty and could materially change our business outlook given our sizable operations in Mexico. The current situation is dynamic, and the magnitude of the profit and free cash flow impact on our business is dependent on the ultimate amount and duration of tariffs as well as changes in foreign exchange rates. We are actively working on multiple plans, both short-term and mid-term, to minimize tariff risks, and remain confident in our ability to reconfigure and optimize our supply chain longer-term if required due to structural changes in global trade policies. We are providing our outlook for operating margins and free cash flow excluding the potential impact of tariffs, but as we gain better clarity on the situation, and if there is a material change in our outlook, we will update our guidance. Despite near-term uncertainty from tariffs, we remain intensely focused on maintaining our growth momentum, gaining share, and increasing our competitiveness to drive long-term, profitable growth. In summary, we are operating from a point of financial strength, will continue investing for future growth and remain agile to adapt to potential changes in the external environment while continuing to deliver exceptional value for our customers.”

Operating Results for the Second Quarter Ended December 31, 2024

Net sales were $108.5 million for the second quarter compared to net sales of $100.1 million in the prior year quarter, an increase of $8.4 million, or 8.4%. The increase was driven by higher sales in home furnishings products sold through retail stores of $9.2 million, or 10.3%, led by unit volume increases and to a lesser extent, ocean freight surcharges. Sales of products sold through e-commerce channels decreased by ($0.8) million, or (7.1%), compared to the second quarter of the prior year. Lower sales in the e-commerce channel were driven by softer consumer demand.

Gross margin for the quarter ended December 31, 2024, was 21.0%, compared to 21.9% for the prior-year quarter, a decrease of 90 basis points (“bps”). The 90-bps decrease was primarily due to margin dilution from higher ocean freight costs.

Selling, general and administrative (SG&A) expenses decreased to 14.9% of net sales in the second quarter of fiscal 2025 compared with 17.3% of net sales in the prior year quarter. The 240-bps decrease was due to leverage on higher sales and structural cost savings, partially offset by investments in growth initiatives for the quarter ended December 31, 2024.

During the quarter, the Company completed the sale of its Dublin, Georgia facility which had been previously recorded as held for sale. The Company recorded a pre-tax gain of $5.0 million related to the sale.

Operating income for the quarter ended December 31, 2024, was $11.7 million compared to $4.6 million in the prior-year quarter. Adjusted operating income for the quarter ended December 31, 2024, was $6.7 million compared to $4.6 million in the prior year quarter.

Income tax expense was $2.6 million, or an effective rate of 22.4%, during the second quarter compared to tax expense of $1.0 million, or an effective rate of 25.5%, in the prior year quarter.

Net income was $9.1 million, or $1.62 per diluted share, for the quarter ended December 31, 2024, compared to net income of $3.1 million, or $0.57 per diluted share, in the prior year quarter. Adjusted net income for the quarter ended December 31, 2024, was $5.3 million or $0.95 per diluted share compared to adjusted net income of $3.1 million or $0.57 per diluted share in the prior year quarter.

Liquidity

The Company ended the quarter with a cash balance of $11.8 million and working capital (current assets less current liabilities) of $98.2 million, and availability of approximately $60.8 million under its secured line of credit.

Capital expenditures for the six months ended December 31, 2024, were $1.3 million.

Financial Outlook

For fiscal year 2025, the Company is increasing the previously disclosed range of expected sales growth from 3.5% to 6.5%, to 5.5% to 8.0%. Excluding the impact of potential tariffs, the range of operating margin is forecasted to increase from 5.8% to 6.5%, to 7.3% to 7.7%, and the expected adjusted operating margin is 6.2% to 6.6%. The impact of tariffs, as well as other potential U.S. policy changes, could materially change our business forecast. Besides tariffs, the most significant drivers of variability in the financial outlook are consumer demand, competitive pricing conditions, and ocean freight rates, all of which will be shaped by macro-economic factors.

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About Flexsteel

Flexsteel Industries, Inc., and Subsidiaries (the “Company”) is one of the largest manufacturers, importers, and marketers of residential furniture products in the United States. Product offerings include a wide variety of furniture such as sofas, loveseats, chairs, reclining rocking chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, kitchen storage, bedroom furniture, and outdoor furniture. A featured component in most of the upholstered furniture is a unique steel drop-in seat spring from which the name “Flexsteel” is derived. The Company distributes its products throughout the United States through its e-commerce channel and direct sales force.

Contact:

Michael Ressler – Investor Contact – investors@flexsteel.com – (563) 585-8116

Source: Flexsteel Industries, Inc.