What Flexsteel Industries (FLXS) Said on Its Q1 Earnings Call

Key Points

• Sales continued to grow: Fiscal Q1 2027 net sales increased 3.2% to $114.0 million, marking 12 consecutive quarters of year-over-year growth. Orders rose about 5%, and backlog increased 8.2% to $77.7 million, while soft seating offset the planned Homestyles exit.
• Margins faced cost pressures: Operating margin fell to 6.0%, below guidance, largely due to an $800,000 foreign-currency loss, higher freight expenses and inflation. Flexsteel is evaluating 2%–3% price increases and productivity measures to offset costs and potential higher tariffs.
• Management expects continued growth: The company forecast Q2 sales of $119.5 million to $123.0 million, or 1%–4% year-over-year growth, with operating margins of 6.5%–7.0%. New wellness, comfort and immersive-seating products are expected to support demand, although consumer confidence and housing affordability remain risks.

Flexsteel Industries NASDAQ: FLXS reported first-quarter fiscal 2027 net sales growth of 3.2% to $114.0 million, extending its streak of year-over-year sales gains to 12 consecutive quarters, as growth in soft seating products offset a planned exit from its Homestyles ready-to-assemble furniture category.

President and Chief Executive Officer Derek Schmidt said sales landed near the upper end of the company’s prior guidance range of 1% to 4% growth. Excluding the Homestyles exit, sales in Flexsteel’s continuing branded business rose approximately 5%. Orders also increased about 5%, while ending backlog rose 8.2% from a year earlier to $77.7 million.

“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,” Schmidt said.

Margins affected by currency and freight costs

Flexsteel recorded GAAP operating income of $6.9 million, or 6.0% of sales, during the quarter. That result was below the company’s 6.5% to 7.0% guidance range, primarily due to an approximately $800,000 foreign-currency translation loss tied to peso-denominated Mexican assets as the U.S. dollar strengthened. The impact represented roughly 70 basis points of operating margin.

Chief Financial Officer Mike Ressler said that excluding the currency effect, operating results were in line with the company’s expectations. Gross margin declined to 22.0% from 23.5% a year earlier. The comparison included a $0.8 million translation loss in the latest quarter, compared with a $0.7 million translation gain in the prior-year period.

The company also faced higher ocean freight, domestic transportation, raw-material and sourced finished-goods costs. Schmidt said ocean transportation rates have nearly doubled over the past six months, while domestic transportation costs have risen alongside diesel prices.

Flexsteel said cost savings, product portfolio management and modest price increases mostly offset inflation during the quarter. Ressler told analysts that incremental inflation totaled roughly $1.5 million to $2 million in the first quarter and could remain at that level in the second quarter.

SG&A expense rose to $18.2 million, or 16.0% of sales, from $17.0 million, or 15.4% of sales, a year earlier. The increase reflected investments in consumer insights, product innovation, marketing and demand generation, according to the company.

Pricing actions and tariff planning

Ressler said average pricing for Flexsteel’s core branded products was up about 10% from the prior year, reflecting changes including tariffs on upholstered furniture. He added that the company had also posted meaningful unit-volume growth in several growth initiatives, including strategic-account penetration, health-and-wellness products and immersive sound seating.

To address continuing cost inflation, Flexsteel is considering an average price adjustment of roughly 2% to 3%, Ressler said. The company is also preparing for a scheduled increase in Section 232 tariffs on upholstered furniture to 30% from 25% on Jan. 1, 2027.

Ressler said Flexsteel would address a tariff increase through productivity initiatives, cost savings and pricing if necessary, characterizing the potential increase as an industry-wide event.

• Flexsteel cited plant-flow redesign and labor productivity work at its Juárez operations.
• The company is continuing to use product platforms intended to reduce parts and improve margin profiles for domestically manufactured products.
• Management also highlighted logistics initiatives aimed at gaining economies of scale and scope.

Product launches focus on comfort and wellness

Schmidt highlighted several product and category initiatives introduced at the Fall High Point furniture market. In made-to-order seating, Flexsteel launched its 6000 series with SixFlex, the sixth generation of its Blue Steel Spring technology, and a Comfort Choice program that offers three comfort levels.

The company is also broadening its health-and-wellness offering across what it identifies as sleep, care, restore and assist needs. Its Zecliner brand addresses sleep, while the Embrace brand targets nursery seating, the Zen collection focuses on restorative wellness, and the Rise collection is intended for mobility and independence solutions.

In immersive seating, Flexsteel introduced Stratus, its second-generation Pulse platform. Schmidt said the product incorporates sound and sensory technology and is the first fully Dolby Atmos-certified solution spanning both a soundbar and furniture-integrated sound system. The company is expanding its marketing partnership with broadcaster Dan Patrick to build awareness of Pulse.

Flexsteel also said its Statements casegoods collection is focused on coordinated bedroom, dining and occasional furniture designs, along with functional features intended to simplify purchase decisions.

Outlook calls for continued sales growth

For the second fiscal quarter, Flexsteel projected sales of $119.5 million to $123.0 million, representing anticipated year-over-year growth of 1% to 4%. Management expects soft seating growth to be partly offset by continued declines in Homestyles ready-to-assemble products as the company exits that category.

The company forecast operating margin of 6.5% to 7.0% for the quarter, expecting volume leverage, cost savings, product portfolio management and modest price increases to largely offset further energy-related inflation.

Flexsteel ended the quarter with $4.4 million in cash, $80.5 million in working capital and no bank debt. Ressler said first-quarter operating cash flow was affected by seasonal outflows, including employee compensation payments and payments for software and insurance contracts, and that the company expects positive cash generation in future quarters.

Management said consumer demand remains the biggest variable in its outlook, citing weak consumer confidence, housing affordability pressures, higher mortgage rates, geopolitical uncertainty and transportation-market volatility.

About Flexsteel Industries (NASDAQ:FLXS)

Flexsteel Industries, Inc is a furniture company that designs, manufactures, imports and markets residential furniture. Based in Dubuque, Iowa, the company serves the U.S. home furnishings market through retail furniture stores, national and regional chains, interior designers and online channels.

The company's product offerings include upholstered seating such as sofas, sectionals, chairs and recliners, along with motion furniture, dining and bedroom furniture, occasional tables and home office products.

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