Flexsteel's Year-Over-Year Sales Growth Slows to 0.7%
Fourth-quarter net sales were $115.4 million, the eleventh straight year-over-year gain, as IEEPA tariff refunds lifted gross margin to 30.0%.
Flexsteel Industries, Inc. (FLXS), one of the largest manufacturers, importers, and marketers of residential furniture in the United States, reported fourth-quarter net sales of $115.4 million, up 0.7% from $114.6 million a year earlier.
That 0.7% increase was the eleventh consecutive quarter of year-over-year growth, but the pace slowed from 1.0% in the third quarter and 9.0% in the second. The fourth-quarter lift came from higher unit volume in soft seating, partially offset by declines in ready-to-assemble products sold under the homestyles brand.
Gross margin was the quarter’s clearest turn. It reached 30.0%, up 610 basis points from 23.9% a year earlier, after only 40 basis points and 170 basis points of year-over-year expansion in the third and second quarters. The 610-basis-point jump primarily reflected a 780-basis-point benefit from IEEPA tariff refunds, offset by a 100-basis-point unfavorable peso translation impact on Mexico assets and a 70-basis-point cost hit from exiting the homestyles ready-to-assemble category.
GAAP operating income was $16.3 million, or 14.2% of net sales, compared with $14.0 million, or 12.2%, a year earlier. Adjusted operating income was $8.2 million, or 7.1% of net sales, down from $10.3 million, or 9.0%, after a $9.0 million tariff-refund add-back and a $0.9 million homestyles-exit charge.
Selling, general and administrative expense was 15.8% of net sales, up 80 basis points from 15.0% a year earlier, reflecting incremental spending on consumer insights, innovation, new products, and marketing. GAAP diluted earnings were $2.58 a share, up from $1.89 a year earlier; adjusted diluted earnings were $1.33 a share, down from $1.40.
Chief executive Derek Schmidt said fourth-quarter sales were only modestly above the prior-year period and that consumer demand remained pressured by weak confidence, affordability constraints, and macroeconomic uncertainty tied to the conflict in the Middle East. He said the health and wellness category, strategic account relationships, and recent product introductions all contributed positively despite softer industry demand.
For the full fiscal year ended June 30, 2026, net sales increased 4.1% to $459.2 million from $441.1 million. GAAP operating income was $42.6 million, or 9.3% of net sales, versus $26.6 million, or 6.0%, a year earlier. Adjusted operating income was $34.4 million, or 7.5% of net sales. GAAP diluted earnings were $6.07 a share, compared with $3.55; adjusted diluted earnings were $4.94 a share, a record, versus $4.17.
Cash generation funded a large buyback. The company generated $24.3 million of cash flow from operations in the fourth quarter and completed $62.6 million of share repurchases. Cash ended June 30, 2026, at $16.7 million, down from $40.0 million a year earlier, with working capital of $94.6 million and about $54.1 million of availability under the secured line of credit. For the year, Flexsteel repurchased approximately $64 million of stock and recently increased its dividend by 25 percent.
For the first quarter of fiscal 2027, the company expects sales of $111 million to $115 million, growth of 1% to 4% versus the prior-year quarter, and GAAP operating margin of 6.5% to 7%. The most significant drivers of variability are consumer demand and logistics and material cost inflation driven by elevated energy prices. Schmidt said the company remains measured in its outlook as macroeconomic uncertainty, inflation, energy costs, and trade policy continue to pressure industry demand and profitability.