EPS of $1.31 increased by 45.3% from previous year
Gross margin of 22.9%
Net income of 6.49M
"We continue to execute well and delivered strong sales growth and sizable year-over-year profit improvement in the quarter. We delivered 6.2% sales growth in the quarter, representing our eighth consecutive quarter of year-over-year growth." - Derek Paul Schmidt
Flexsteel Industries Inc (FLXS) QQ1 2026 Results — Revenue Growth, Margin Expansion, and Tariff Headwinds in Focus
Executive Summary
Flexsteel delivered a solid start to fiscal year 2026 (QQ1) with continued top-line momentum and accelerating profitability, despite a challenging macro environment and meaningful tariff headwinds. First-quarter net sales reached $110.4 million, up 6.2% year over year, marking the eighth consecutive quarter of YoY growth. GAAP operating income was $9.0 million (8.1% of sales), beating the guided range on fixed-cost leverage and favorable foreign exchange translation, underscoring the company’s operating discipline and scale benefits. Net income totaled $6.49 million with a 5.9% net margin, supported by higher gross margins (22.9%) and ongoing cost controls. The quarter benefited from a roughly $2.4 million tariff-related pricing impact, and management noted that tariffs, pricing actions, and demand dynamics will remain a near-term challenge as the industry adjusts to a higher 232 tariff regime on upholstered furniture.
Key Performance Indicators
Revenue
109.60M
QoQ: -3.83% | YoY:-1.10%
Gross Profit
25.11M
22.91% margin
QoQ: -0.89% | YoY:6.55%
Operating Income
8.15M
QoQ: 261.09% | YoY:73.83%
Net Income
6.49M
QoQ: 273.46% | YoY:31.88%
EPS
1.38
QoQ: 294.37% | YoY:45.26%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $110.4 million, up 6.2% YoY from $104.0 million; QoQ growth not material given flat backlog.
Gross Profit / Margin: Gross profit $25.11 million; gross margin 22.91% (0.2291). YoY gross profit up about 6.6%; QoQ margin flat to modestly lower given tariff dynamics.
Operating Income / Margin: GAAP operating income $9.15 million (approximate from calls and balance sheet data cited as 8.1% margin); operating margin 7.44% (vs. prior year expansion).
Net Income / Margin: Net income $6.49 million; net margin 5.92%. EPS $1.38 (GAAP) and $1.31 (diluted).
Backlog: End of period backlog about $66.7 million, broadly flat vs prior quarter, supporting the revenue base into subsequent quarters.
Financial Highlights
Overview of QQ1 2026 financials and key operational metrics:
- Revenue: $110.4 million, up 6.2% YoY from $104.0 million; QoQ growth not material given flat backlog.
- Gross Profit / Margin: Gross profit $25.11 million; gross margin 22.91% (0.2291). YoY gross profit up about 6.6%; QoQ margin flat to modestly lower given tariff dynamics.
- Operating Income / Margin: GAAP operating income $9.15 million (approximate from calls and balance sheet data cited as 8.1% margin); operating margin 7.44% (vs. prior year expansion).
- Net Income / Margin: Net income $6.49 million; net margin 5.92%. EPS $1.38 (GAAP) and $1.31 (diluted).
- Backlog: End of period backlog about $66.7 million, broadly flat vs prior quarter, supporting the revenue base into subsequent quarters.
- Cash Flow and Balance Sheet: Net cash provided by operating activities $4.11 million; free cash flow $2.76 million; cash balance $38.59 million; no bank debt; total debt $57.81 million with net cash position of $38.59 million after cash.
- Capital Allocation: Share repurchases of $1.13 million and dividends paid of $1.15 million; investments in fixed assets reflected in $1.36 million capex; no current debt covenant pressure reported.
- Guidance and Tariffs: Management paused formal forward-looking guidance due to tariff uncertainty; pricing actions and cost-reduction efforts largely offset tariff headwinds in the quarter, but near-term demand and margins are expected to be affected as tariffs evolve. Management signaled a multi-pronged response plan and continued investments in growth initiatives (new products, consumer insights, and go-to-market initiatives).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
109.60M
-1.10%
-3.83%
Gross Profit
25.11M
6.55%
-0.89%
Operating Income
8.15M
73.83%
261.09%
Net Income
6.49M
31.88%
273.46%
EPS
1.38
45.26%
294.37%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management themes and quotes from the QQ1 2026 earnings call:
- Strategy and Growth Initiatives: Derek Schmidt emphasized that growth is broad-based across core markets and new and expanded markets, driven by new products, strategic accounts, and investments in consumer insights, product development, and marketing. He stated, “Our growth strategies are working and will continue to drive future sales increases propelled by focused investments in consumer research, new product development, innovation, and marketing.”
- Tariff Environment and Mitigation: Management outlined a heightened tariff backdrop (Section 232 tariffs on imported timber and upholstery) and described a staged pricing response. Schmidt noted the expectation that tariffs will depress near-term demand and margins, while Flexsteel pursues a multi-pronged mitigation plan, including tariff surcharges, pricing discipline, cost reductions, and exploring alternative supply sources. Ressler added that the net tariff impact, pricing actions, and demand will become clearer over time, justifying a pause on forward-looking guidance.
- New Product Pipeline and Innovation: The company showcased a robust product cadence, including Pulse (power-motion seating with built-in immersive sound) and Zen (wellness-focused seating), as well as seven new case goods collections under the Statements sub-brand. Schmidt highlighted that more than half of Q1 sales were from new products (just over 50%), aligning with a long-term target of 30–40% of sales from products launched in the last three years.
- Financial Discipline and Backlog: Management highlighted strong fixed-cost leverage and favorable peso translation as contributors to the better-than-guided operating margin. The Q1 backlog remained healthy at $66.7 million, reinforcing near-term revenue visibility despite macro headwinds.
We continue to execute well and delivered strong sales growth and sizable year-over-year profit improvement in the quarter. We delivered 6.2% sales growth in the quarter, representing our eighth consecutive quarter of year-over-year growth.
— Derek Paul Schmidt
In the near term, we expect the net impact of the tariff change and our subsequent pricing response to adversely impact demand and dilute margins.
— Derek Paul Schmidt
Forward Guidance
Guidance paused due to tariff uncertainty. Management acknowledged that tariffs, pricing actions, consumer demand, and cost-savings efforts will shape outcomes in the near term, with an expectation that demand could be dampened and margins compressed as tariffs permeate pricing. They indicated a preference to reassess and share updated outlook as clarity emerges on tariff impact and cost mitigation effectiveness. The longer-term framework remains positive: continued penetration of new product categories (Pulse, Zen, health-and-wellness seating), expansion of case goods via Statements, and ongoing investments in consumer insights and marketing to drive share gains. Key indicators investors should monitor include: (1) tariff pass-through and its effect on consumer demand, (2) changes in input costs and supply chain resilience, (3) the trajectory of backlog and order intake, and (4) progress on new product introductions and related margin impact.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
FLXS Focus
22.91%
N/A
N/A
N/A
HOFT
20.50%
-5.53%
-1.86%
-11.10%
BSET
57.00%
2.99%
1.11%
18.49%
WLFC
71.00%
15.20%
2.98%
15.47%
RCKY
41.20%
7.63%
2.09%
6.56%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Near term: Flexsteel faces tariff-induced headwinds that may suppress demand and compress margins. The company’s disciplined cost controls, fixed-cost leverage, and tariff-mitigation actions partially offset these pressures in QQ1. Backlog maintains visibility into next quarters, and the new-product engine (Pulse, Zen, Statements) should support mid- to long-term revenue growth and margin expansion as product cycles mature. The balance sheet is a clear strength, enabling continued investments in innovation and brand-building without debt-funded financial strain. Valuation should reflect the earnings resilience from product diversification and the upside potential if tariff headwinds stabilize or abate. Key catalysts to watch include: tariff policy developments, the pace of new product adoption by retailers, and the execution of supply-chain diversification plans. Overall, Flexsteel presents a constructive long-term investment opportunity anchored by a solid cash position, an ongoing innovation program, and a portfolio designed to capture share in a recovering housing/consumer environment.
Key Investment Factors
Growth Potential
Catalysts include a robust new-product program (Pulse, Zen, 7 new case goods collections; 226 SKUs), a target 30–40% of sales from new products, and continued market share gains driven by consumer insights and selective pricing. Backlog of $66.7M and a net cash balance support the capacity to fund growth investments and potential bolt-on opportunities while protecting the balance sheet during tariff volatility.
Profitability Risk
Key risks include the risk of further tariff escalations and reduced consumer demand in a high-price environment, potential competition price discipline, currency headwinds (peso translation benefited Q1 but could reverse), and the reliance on imported components. The pause on guidance reflects the uncertainty around tariff impacts and the timing of supply-chain adjustments.
Financial Position
Flexsteel reports a strong liquidity position: cash and equivalents of about $38.6M, no bank debt, total debt of $57.8M, and a net cash position of $38.6M. The balance sheet remains solid with total assets of $281.5M and total stockholders’ equity around $172.2M. Free cash flow generation (~$2.76M in Q1) supports ongoing investments in product development and marketing while maintaining financial flexibility.
SWOT Analysis
Strengths
Solid balance sheet with no bank debt and a net cash position (cash ~$38.6M; total debt ~$57.8M; net cash ~$38.6M)
Flexsteel Industries Inc (FLXS) QQ1 2025 Results: Revenue Growth in a Challenging Macro Environment with Margin Expansion and Product Line Acceleratio...