Executive Summary
Flexsteel Industries reported a solid second quarter of fiscal year 2025 (Q2 2025), with net sales of $108.5 million and 8.4% year-over-year growth, marking the fifth consecutive quarter of mid-single to low-double-digit increases. The quarter featured broad-based demand momentum across core Flexsteel brands and a range of expansion initiatives (Zecliner, Flex, Charisma, Casegoods, Big Box) that contributed to the growth mix, while the Homestyles online brand remained under pressure. GAAP operating income rose to $11.7 million (11.0% of sales), but after excluding a $5.0 million pretax gain from the Dublin, Georgia facility sale, adjusted operating income was $6.7 million (6.1% of net sales), illustrating the impact of one-time items on headline margins. Management emphasized sustained margin expansion through operating leverage, productivity, and portfolio management, with adjusted gross margins near 21% and a path to higher profitability through mix, pricing discipline, and cost controls.
Management provided a cautious but constructive near-term outlook for Q3 2025, guiding revenue of $110–$115 million (3%–7% growth year over year), gross margins of 21–22%, SG&A of $16.5–$17.2 million, and an expected operating margin of 6.0%–7.0% excluding tariff impacts. Free cash flow is expected to be $4–$7 million with capital expenditures of $0.7–$1.0 million. Tariff dynamics, particularly in Mexico and Vietnam, were highlighted as the principal near-term risk, with plans to diversify suppliers and potentially adjust pricing or cost structures if tariffs persist. Overall, the company remains financially solid, generating cash, paying down debt when possible, and pursuing growth investments that support long-term profitability.
Key Performance Indicators
QoQ: 92.72% | YoY:154.23%
QoQ: 118.70% | YoY:196.76%
QoQ: 116.25% | YoY:193.22%
Key Insights
Revenue: $108.483 million in Q2 2025, up 8.37% YoY and 4.30% QoQ. Gross Profit: $22.805 million, gross margin 21.02%. Operating Income (GAAP): $11.654 million (operating margin 10.74%). Adjusted Operating Income (ex. Dublin gain): $6.7 million (adjusted margin 6.1%), versus prior-year $4.6 million and 4.6% margin. EBITDA: $12.609 million (EBITDA margin 11.62%). Net Income: $9.054 million (net margin 8.35%). EPS: $1.73 (diluted $1.62).
Cash Flow and liquidity: Net cash provided by operating act...
Financial Highlights
Revenue: $108.483 million in Q2 2025, up 8.37% YoY and 4.30% QoQ. Gross Profit: $22.805 million, gross margin 21.02%. Operating Income (GAAP): $11.654 million (operating margin 10.74%). Adjusted Operating Income (ex. Dublin gain): $6.7 million (adjusted margin 6.1%), versus prior-year $4.6 million and 4.6% margin. EBITDA: $12.609 million (EBITDA margin 11.62%). Net Income: $9.054 million (net margin 8.35%). EPS: $1.73 (diluted $1.62).
Cash Flow and liquidity: Net cash provided by operating activities $6.693 million; free cash flow $5.786 million; capital expenditures $0.907 million; cash end of period $11.789 million; working capital $98.1 million; no line of credit outstanding.
Balance sheet health: Total assets $271.547 million; total liabilities $109.627 million; total stockholders’ equity $161.92 million. Cash & equivalents $11.789 million; total debt $65.809 million; net debt $54.02 million. Current ratio 2.93; quick ratio 1.14; days’ sales outstanding 30.12; days’ inventory outstanding 95.63; days payable outstanding 21.76; cash conversion cycle 104 days.
Market and valuation: Price-to-book 1.76; price-to-sales 2.63; price-to-earnings 7.87; price-to-free-cash-flows 49.28; enterprise value multiple 26.90; dividend yield 0.31%.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
108.48M |
8.37% |
4.30% |
| Gross Profit |
22.81M |
3.90% |
1.95% |
| Operating Income |
11.65M |
154.23% |
92.72% |
| Net Income |
9.05M |
196.76% |
118.70% |
| EPS |
1.73 |
193.22% |
116.25% |
Key Financial Ratios
operatingProfitMargin
10.7%
operatingCashFlowPerShare
$1.28
freeCashFlowPerShare
$1.1
dividendPayoutRatio
9.79%
Management Commentary
Key insights from the Q2 2025 earnings call, grouped by themes:
- Strategy and growth trajectory: Management emphasized broad-based momentum across core brands and expansion initiatives, noting 8.4% net sales growth and five consecutive quarters of mid-single to low-double-digit YoY growth. The team highlighted that Flexsteel-branded core markets were up 7%, while Homestyles online sales declined ~30%. Growth initiatives (Zecliner, Flex, Charisma, Casegoods, Big Box) contributed meaningfully, with expansion initiatives up 92% YoY. A quote from Derek Schmidt underscored momentum: “We continued our strong momentum from the first quarter, delivering sales growth of 8.4% … fifth consecutive quarter of mid single to low double digit YoY growth.” The company also noted a sustainable growth trajectory driven by product development, innovation, marketing, and customer experience investments.
- Profitability and leverage: Operating margin rose to 6.1% on an adjusted basis (6.1% of net sales) excluding a $5.0 million pretax Dublin facility gain, reflecting margin expansion from sales leverage and cost savings. EBITDA was $12.609 million, with an EBITDARatio of 0.116. Management attributed the margin expansion to leverage and productivity gains and reiterated that long-term profitability would be supported by a diversified product mix and ongoing efficiency initiatives.
- Tariffs and supply chain resilience: Tariff risk is highlighted as a near-term material risk. Management outlined plans to diversify suppliers, dual-source products across countries, and potentially implement pricing surcharges if tariffs persist. The company noted Vietnam and Mexico as primary exposures, with roughly 50% and 40% of revenue, respectively, tied to those regions. They also described a playbook for supply-chain reconfiguration should tariffs become prolonged.
- Balance sheet and cash flow: The call indicated debt reduction and positive free cash flow generation, with a note that the Dublin facility sale generated a pretax gain and cash proceeds. Management stated the company ended the quarter debt-free, though the reported balance sheet shows total debt of $65.8 million and net debt of $54.0 million, signaling a possible discrepancy between the narrative and reported numbers. The company also emphasized disciplined capital allocation with ongoing ERP modernization and ROI-driven investments.
"We continued our strong momentum from the first quarter, delivering sales growth of 8.4% compared to the prior year quarter, which exceeded the top end of our guidance range and represents our fifth consecutive quarter of mid single to low double digit year-over-year growth."
— Derek Schmidt
"The levers driving our consistent profit improvement are unchanged and working effectively and include sales growth leverage, strong operational execution and productivity and product portfolio management."
— Derek Schmidt
Forward Guidance
Outlook and qualitative assessment for the remainder of FY2025:
- Revenue guidance for Q3 2025: $110–$115 million, representing 3%–7% growth YoY, supported by unit volume growth and selective pricing to offset higher ocean freight costs.
- Gross margin: expected to be 21%–22% for Q3 2025, with profitability driven by sales leverage that offsets freight cost pressures.
- SG&A: anticipated between $16.5 million and $17.2 million for Q3, with continued emphasis on high-ROI investments to accelerate growth.
- Operating margin (ex tariff impact): projected at 6.0%–7.0% for Q3 2025, with free cash flow in the $4–$7 million range.
- Capex: guided at $0.7–$1.0 million, focused on ERP modernization and supply-chain maintenance.
- Tariff risk and macro factors: the company assumes no near-term material policy changes but acknowledges tariffs as a meaningful risk, particularly for Mexican imports. If tariffs persist or widen, the profitability and free cash flow could deteriorate; management indicated a willingness to adjust through pricing, cost management, or supply-chain reconfiguration.
- Investment thesis on guidance achievability: The outlook appears contingent on macro demand stability and tariff developments. The company possesses a diversified growth platform, resilient balance sheet, and a clear playbook to mitigate tariff exposure, supporting a constructive but cautious stance on FY2025 profitability and cash flow.