EPS of $-0.71 decreased by 302.9% from previous year
Gross margin of 22.2%
Net income of -3.74M
""New product has been an underpinning to our growth story over the past several years, and we remain aggressive in continually bringing fresh looks with improved value to our retail partners."" - Derek Schmidt
Flexsteel delivered a solid third quarter in a challenging tariff and macro backdrop. Net sales rose 6.3% year-over-year to $113.97 million, marking the sixth consecutive quarter of Y/Y growth and near the upper end of guidance. The company posted an adjusted operating margin of 7.3% for Q3, its second-highest in seven years, driven by sales growth leverage, a favorable mix of higher-margin new products, and ongoing operational discipline. However, GAAP operating income turned negative at -$5.06 million largely due to a $14.1 million non-cash impairment related to the Mexicali leased facility, with a $0.7 million gain from the sale of a building partially offsetting the impairment in the period. Excluding the impairment and asset sale, adjusted operating income would be $8.3 million (7.3% of net sales), underscoring the ongoing earnings strength when not recognizing impairment charges.
Strategically, Flexsteel continues to lean into product innovation and market expansion. Management reiterated the importance of new product introductions and expanded market penetration (notably Z Kleiner and Casegoods rollouts) as key growth engines, with management highlighting 25 new product groups introduced across the portfolio and ongoing share gains with large strategic accounts. The company also signaled proactive tariff management, having moved sourcing away from China and onto Vietnam and Mexico, with Vietnam representing roughly 55% of revenue and Mexico almost 40% of sales. Tariff headwinds remain the dominant near-term risk; the company implemented modest tariff surcharges on select orders and stressed sourcing diversification and cost efficiencies to mitigate margin erosion. The backlog stood at $78.3 million entering Q4, providing a degree of visibility, but demand volatility and potential tariff evolutions could widen the range of outcomes. Near-term liquidity remains solid, with operating cash flow of $12.3 million and ending cash of $22.6 million, underscoring a resilient balance sheet and cash generation capability to support product investment and working-capital needs. The fourth-quarter guidance implies sales of $109–$116 million and gross margins of 21–22%, with operating margins guided at 6.0–7.3% and free cash flow of $4–$7 million, pending tariff and demand dynamics. Investors should monitor tariff developments (Vietnam, USMCA/Mexico), retail demand signals, backlog progression, and the company’s ability to scale its expanded product initiatives in a volatile consumer environment. Flexsteel’s long-term thesis rests on its ability to sustain share gains through product leadership and retail partnerships while maintaining balance-sheet strength and cash generation to fund growth investments.
Key Performance Indicators
Revenue
113.97M
QoQ: 5.06% | YoY:6.30%
Gross Profit
25.34M
22.23% margin
QoQ: 11.10% | YoY:8.66%
Operating Income
-5.06M
QoQ: -143.42% | YoY:-190.21%
Net Income
-3.74M
QoQ: -141.33% | YoY:-307.54%
EPS
-0.71
QoQ: -141.04% | YoY:-302.86%
Revenue Trend
Margin Analysis
Key Insights
to mid-20s and ongoing profitability recovery driven by product and efficiency initiatives.
Financial Highlights
Revenue performance: Q3 net sales of $113.972 million, up 6.3% YoY and 5.06% QoQ (per earnings call). Gross profit of $25.336 million, gross margin 22.23% vs. prior-year level reflecting favorable product mix and volume benefits. Operating income was a GAAP loss of $5.06 million; adjusted operating income was $8.3 million (7.3% of net sales) excluding a $14.1 million impairment related to Mexicali lease and a $0.7 million gain from a building sale. Net income declined to a loss of $3.742 million with a net margin of -3.28%; diluted EPS was -0.71.
Backlog: Ending Q3 backlog of $78.3 million provides near-term order visibility. Cash flow: Operating cash flow of $12.3 million; ending cash of $22.6 million; capex of $1.356 million; free cash flow of $10.906 million. Balance sheet: Total assets $266.126 million; total liabilities $108.007 million; working capital $103.4 million; cash and equivalents $22.634 million; total debt $61.152 million; net debt $38.518 million. Leverage and liquidity metrics: current ratio 2.93; quick ratio 1.305; cash ratio 0.423; debt-to-equity 0.387; debt-to-capitalization 27.9%; return metrics show negative returns in the quarter (ROA -1.41%, ROE -2.37%), reflecting the impairment impact but solid long-term cash generation potential as the business navigates tariff-related headwinds. Guidance snapshot: Q4 sales guidance of $109–$116 million; gross margin 21–22%; SG&A around the mid-teens; operating margin 6.0–7.3%; free cash flow $4–$7 million; capex $0.5–$1.0 million. Backdrop: Trailing four-quarter revenue approximately $437.284 million, placing run-rate in the mid-$430s range, with gross margins in the low- to mid-20s and ongoing profitability recovery driven by product and efficiency initiatives.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
113.97M
6.30%
5.06%
Gross Profit
25.34M
8.66%
11.10%
Operating Income
-5.06M
-190.21%
-143.42%
Net Income
-3.74M
-307.54%
-141.33%
EPS
-0.71
-302.86%
-141.04%
Key Financial Ratios
currentRatio
2.93
grossProfitMargin
22.2%
operatingProfitMargin
-4.44%
netProfitMargin
-3.28%
returnOnAssets
-1.41%
returnOnEquity
-2.37%
debtEquityRatio
0.39
operatingCashFlowPerShare
$2.33
freeCashFlowPerShare
$2.07
dividendPayoutRatio
-23.9%
priceToBookRatio
1.22
priceEarningsRatio
-12.86
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Theme: Growth strategy and product innovation. Management emphasized that new product introductions and market expansion are core to driving sustained growth: "New product has been an underpinning to our growth story... we remain aggressive in continually bringing fresh looks with improved value to our retail partners" (Derek Schmidt). Theme: Margin discipline and cash generation. The company highlighted an 8th consecutive quarter of YoY adjusted margin improvement and a strong cash position: "The adjusted operating margin of 7.3% in the quarter represents our eighth consecutive quarter of year-over-year improvement and our second highest quarterly adjusted operating margin over the past seven years" (Mike Ressler). Theme: Tariff risks and supply chain resilience. Management outlined the tariff backdrop (Vietnam, Mexico) and steps taken to mitigate impact, including surcharges and sourcing diversification, while acknowledging potential margin dilution if tariffs persist or intensify: "we have completely moved out of China... Vietnam production supports roughly 55% of our revenue, and our Mexican operations support almost 40% of sales... 10% tariff on Vietnam imports" (Derek Schmidt). Quote highlights also emphasize prioritizing strategy execution and investments in talent, product development, and marketing as anchors to long-term shareholder value.
"New product has been an underpinning to our growth story over the past several years, and we remain aggressive in continually bringing fresh looks with improved value to our retail partners."
— Derek Schmidt
"The adjusted operating margin of 7.3% in the quarter represents our eighth consecutive quarter of year-over-year improvement and our second highest quarterly adjusted operating margin over the past seven years."
— Mike Ressler
Forward Guidance
Fourth-quarter outlook centers on a cautious yet constructive view amid tariff uncertainty and volatile demand. The company expects Q4 net sales of $109–$116 million and gross margins of 21–22%, assuming 10% Vietnam tariffs remain and Mexico tariffs stay favorable under USMCA. Operating margin guidance is 6.0–7.3%, with free cash flow of $4–$7 million and capex of $0.5–$1.0 million (ERP modernization and supply chain maintenance). The company notes that demand could deteriorate if retailer sell-through weakens, leading to softer orders in the back half of the quarter. Management stresses supply-chain agility and shared cost management to mitigate tariff impact, but warns that material tariff changes could meaningfully affect margins. Factors investors should monitor include: evolving US–Vietnam trade policy, Mexican-US trade policy under USMCA, macroeconomic consumer sentiment, retailer inventory restocking behavior ahead of tariffs, and the pace of new product adoption by retailers.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
FLXS Focus
22.23%
-4.44%
-2.37%
-12.86%
HOFT
23.00%
-6.96%
-1.98%
-10.24%
BSET
56.20%
0.74%
0.48%
45.56%
WLFC
73.40%
36.00%
4.65%
10.16%
RCKY
38.10%
8.79%
2.31%
11.24%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Base-case: Flexsteel is positioned to extend its growth trajectory supported by an active new-product pipeline, market diversification, and healthy cash generation. The company’s ability to cushion tariff headwinds via surcharges and sourcing diversification, combined with a sizable backlog, supports a constructive long-term stance. Key catalysts include resolution or modification of US–Vietnam tariff terms, continued ramp of Z Kleiner and Casegoods products, and ongoing ERP/supply-chain improvements that could lift margins toward the higher end of the guided range. Risks include a material downturn in demand or a substantial tariff escalation that could materially dent gross margins and operating profitability. Given the balance sheet strength and upside from product-led growth, Flexsteel offers a measured risk-reward profile for investors focusing on US consumer furnishings with exposure to tariff dynamics and product lifecycle evolution.
Key Investment Factors
Growth Potential
Strong underpinnings from ongoing product innovation (25 new groups showcased at High Point; expanded Z Kleiner lineup), broad-based market expansion, and share gains with large strategic accounts. Backlog of $78.3 million and robust cash generation support funds for CapEx on ERP modernization and product development, enabling continued growth investments even in a tariff-uncertain environment.
Profitability Risk
Primary risk is tariff exposure and potential demand volatility from macroeconomic shocks. Vietnam tariffs, USMCA-related supply chain reconfigurations, and possible shifts in consumer spending could compress margins and slow growth. Dependence on Vietnam and Mexico for a significant portion of revenue amplifies tariff and geopolitical risk; impairment charges tied to legacy facilities indicate ongoing fixed-cost exposure in a changing environment.
Financial Position
Solid balance sheet and liquidity: cash of $22.6 million, working capital of $103.4 million, and total debt of $61.2 million with net debt of $38.5 million. Current ratio 2.93 and debt-to-equity of 0.387 provide a cushion to fund innovation, working-capital needs, and potential supply-chain investments while maintaining financial flexibility.
SWOT Analysis
Strengths
Solid YoY revenue growth (Q3 2025 +6.3%), with six consecutive quarters of growth.
Strong product innovation engine and backlog providing near-term visibility ($78.3M).
Flexsteel Industries Inc (FLXS) QQ1 2025 Results: Revenue Growth in a Challenging Macro Environment with Margin Expansion and Product Line Acceleratio...