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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
September 30,
2025
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number
0-5151
______________________________________
FLEXSTEEL INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Incorporated in the State of
Minnesota
42-0442319
(State or other Jurisdiction of
(I.R.S. Identification No.)
Incorporation or Organization)
385 BELL STREET
DUBUQUE
,
IA
52001-7004
(Address of Principal Executive Offices) (Zip Code)
(
563
)
556-7730
(Registrant’s Telephone Number, Including Area Code)
______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
FLXS
The Nasdaq Stock Market, LLC
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such a shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one).
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
Trade receivables - less allowances: September 30, 2025, $
1,826
, June 30, 2025, $
1,790
35,243
35,229
Inventories
86,972
89,135
Other
14,567
8,002
Total current assets
175,367
172,372
NONCURRENT ASSETS:
Property, plant and equipment, net
36,440
36,212
Operating lease right-of-use assets
40,385
41,545
Deferred income taxes
9,084
12,444
Other assets
20,198
19,913
TOTAL ASSETS
$
281,474
$
282,486
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade
$
28,669
$
25,617
Current portion of operating lease liabilities
7,971
7,809
Accrued liabilities:
Payroll and related items
5,889
11,260
Insurance
1,798
1,950
Sales and advertising related items
7,930
8,061
Other
6,249
7,317
Total current liabilities
58,506
62,014
LONG-TERM LIABILITIES:
Operating lease liabilities, less current maturities
49,842
51,561
Other liabilities
942
1,049
Total liabilities
109,290
114,624
SHAREHOLDERS' EQUITY:
Common stock - $
1
par value; authorized
15,000
shares;
8,579
shares issued and
5,340
outstanding as of September 30, 2025;
8,514
shares issued and
5,307
outstanding as of June 30, 2025
8,579
8,514
Additional paid-in capital
39,795
40,644
Treasury stock, at cost;
3,238
shares as of September 30, 2025, and
3,207
shares as of
June 30, 2025
(
72,861
)
(
71,731
)
Retained earnings
196,671
190,435
Total shareholders' equity
172,184
167,862
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
281,474
$
282,486
See accompanying Notes to Consolidated Financial Statements (Unaudited).
3
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in thousands, except per share data)
Three Months Ended
September 30,
2025
2024
Net sales
$
110,439
$
104,007
Cost of goods sold
84,493
81,639
Gross profit
25,946
22,367
Selling, general and administrative expenses
16,959
16,320
Operating income
8,987
6,047
Other income (expense):
Interest income
391
—
Interest (expense)
—
(
51
)
Income before income taxes
9,378
5,996
Income tax provision
2,051
1,856
Net income and comprehensive income
$
7,327
$
4,140
Weighted average number of common shares outstanding:
Basic
5,307
5,203
Diluted
5,598
5,576
Earnings per share of common stock:
Basic
$
1.38
$
0.80
Diluted
$
1.31
$
0.74
See accompanying Notes to Consolidated Financial Statements (Unaudited).
4
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(UNAUDITED)
(Amounts in thousands)
Three Months Ended September 30, 2025
Total Par
Value of
Common
Additional
Shares
Paid-In
Treasury
Retained
($
1
Par)
Capital
Stock
Earnings
Total
Balance on June 30, 2025
$
8,514
$
40,644
$
(
71,731
)
$
190,435
$
167,862
Stock-based compensation
4
1,113
—
—
$
1,117
Vesting of restricted stock units
60
(
1,991
)
—
—
$
(
1,931
)
Stock options exercised, net
1
29
—
—
$
30
Treasury stock purchases
—
—
(
1,130
)
—
$
(
1,130
)
Cash dividends declared
—
—
—
(
1,091
)
$
(
1,091
)
Net income
—
—
—
7,327
$
7,327
Balance on September 30, 2025
$
8,579
$
39,795
$
(
72,861
)
$
196,671
$
172,184
Three Months Ended September 30, 2024
Total Par
Value of
Common
Additional
Shares
Paid-In
Treasury
Retained
($
1
Par)
Capital
Stock
Earnings
Total
Balance on June 30, 2024
$
8,407
$
39,573
$
(
71,731
)
$
174,118
$
150,367
Stock-based compensation
3
1,135
—
—
1,138
Stock options exercised, net
4
(
36
)
—
—
(
32
)
Cash dividends declared
—
—
—
(
910
)
(
910
)
Net income
—
—
—
4,140
4,140
Balance on September 30, 2024
$
8,414
$
40,672
$
(
71,731
)
$
177,348
$
154,703
See accompanying Notes to Consolidated Financial Statements (Unaudited).
5
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
Three Months Ended
September 30,
2025
2024
OPERATING ACTIVITIES:
Net income
$
7,327
$
4,140
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
836
929
Deferred income taxes
3,360
22
Stock-based compensation expense
1,117
1,138
Change in provision for losses on accounts receivable
36
(
40
)
Loss on disposal of assets
—
10
Changes in operating assets and liabilities:
Trade receivables
(
50
)
4,796
Inventories
2,163
680
Other current assets
(
6,565
)
(
1,844
)
Other assets
(
285
)
(
564
)
Accounts payable - trade
3,346
(
956
)
Accrued liabilities
(
7,063
)
(
6,004
)
Other long-term liabilities
(
108
)
91
Net cash provided by operating activities
4,114
2,398
INVESTING ACTIVITIES:
Proceeds from sales of investments
—
1,155
Capital expenditures
(
1,357
)
(
427
)
Net cash (used in) provided by investing activities
(
1,357
)
728
FINANCING ACTIVITIES:
Dividends paid
(
1,147
)
(
874
)
Treasury stock purchases
(
1,130
)
—
Proceeds from line of credit
—
102,851
Payments on line of credit
—
(
104,092
)
Proceeds from issuance of common stock
30
—
Shares withheld for tax payments on vested shares and options exercised
(
1,931
)
(
32
)
Net cash (used in) financing activities
(
4,178
)
(
2,147
)
(Decrease) increase in cash and cash equivalents
(
1,421
)
979
Cash and cash equivalents at beginning of the period
40,006
4,761
Cash and cash equivalents at end of the period
$
38,585
$
5,740
SUPPLEMENTAL INFORMATION
Interest paid
—
60
Interest received
391
—
Cash paid for income taxes, net
4,108
2,100
Capital expenditures in accounts payable
73
2
See accompanying Notes to Consolidated Financial Statements (Unaudited).
6
FLEXSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE PERIOD ENDED
September 30, 2025
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS – Flexsteel Industries, Inc. and Subsidiaries (the “Company” or “Flexsteel” or “Our”) is one of the largest manufacturers, importers, and marketers of furniture products in the United States. Product offerings include a wide variety of furniture such as sofas, loveseats, chairs, reclining rocking chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, kitchen storage, bedroom furniture, and outdoor furniture. A featured component in most of the upholstered furniture is a unique steel drop-in seat spring from which the name “Flexsteel” is derived. The Company distributes its products throughout the United States through its e-commerce channel and direct sales force.
BASIS OF PRESENTATION – The unaudited Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information contained in the Consolidated Financial Statements includes normal recurring adjustments and reflects all adjustments, which are, in the opinion of management, necessary for a fair presentation of such Consolidated Financial Statements. Operating results for the
three months ended September 30, 2025, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2026. Certain information and footnote disclosures normally included in the Consolidated Financial Statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. Except to the extent updated or described below, the significant accounting policies in Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended June 30, 2025
, appropriately represent, in all material respects, the current status of accounting policies.
2. INVENTORIES
A comparison of inventories is as follows:
September 30,
June 30,
(in thousands)
2025
2025
Raw materials
$
9,850
$
11,114
Work in process and finished parts
2,512
2,632
Finished goods
74,610
75,389
Total
$
86,972
$
89,135
3. LEASES
The Company accounts for its leases in accordance with ASU 842,
Leases
. ASC 842 requires lessees to (i) recognize a right-of-use asset (“ROU asset”) and a lease liability that is measured at the present value of the remaining lease payments on the Consolidated Balance Sheets, (ii) recognize a single lease cost, calculated over the lease term on a straight-line basis and (iii) classify lease-related cash payments within operating and financing activities. The Company made an accounting policy election to not recognize short-term leases on the Consolidated Balance Sheets and all non-lease components, such as common area maintenance, were excluded. At any given time during the lease term, the lease liability represents the present value of the remaining lease payments, and the ROU asset is measured as the amount of the lease liability, adjusted for pre-paid rent, unamortized initial direct costs, the remaining balance of lease incentives received, and any impairment. Both the lease ROU asset and lease liability are reduced to zero at the end of the lease term.
The Company leases distribution centers and warehouses, manufacturing facilities, showrooms, and office space. At the lease inception date, the Company determines if an arrangement is, or contains, a lease. Some of the Company’s leases include options to renew at similar terms. The Company assesses these options to determine if the Company is reasonably certain of exercising these options based on relevant economic and financial factors. Options that meet these criteria are included in the lease term at the lease commencement date.
For purposes of measuring the Company’s ROU asset and lease liability, the discount rate utilized by the Company was based on the average interest rates effective for the Company’s line of credit. Some of the Company’s leases contain variable rent payments, including common area maintenance and utilities. Due to the variable nature of these costs, they are not included in the measurement of the ROU asset and lease liability.
7
The components of the Company’s leases excluding the impact of sublease income reflected on the Company’s Consolidated Statements of Income were as follows:
Three Months Ended
September 30,
(in thousands)
2025
2024
Operating lease expense
$
2,098
$
2,478
Variable lease expense
413
519
Total lease expense
$
2,511
$
2,997
Other information related to leases and future minimum lease payments under non-cancelable operating leases were as follows:
Three Months Ended
September 30,
(in thousands)
2025
2024
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases
$
2,493
$
2,441
Cash received from subleasing of operating lease:
Operating cash flows received from subleasing of operating lease
$
—
$
594
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases
$
456
$
—
Weighted-average remaining lease term (in years):
Operating leases
6.9
7.9
Weighted-average discount rate:
Operating leases
3.9
%
3.1
%
Future minimum lease payments under non-cancelable operating leases were as follows:
September 30, 2025
Remaining payments in FY2026
$
7,544
FY2027
10,255
FY2028
10,025
FY2029
8,949
FY2030
8,713
Thereafter
20,400
Total future minimum lease payments
$
65,886
Less imputed interest
8,073
Lease liability
$
57,813
4. CREDIT ARRANGEMENTS
On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders party thereto. The Credit Agreement has a
five-year
term and provided for up to an $
85
million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $
5
million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not less than
1.00
to 1.00. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities.
As of September 30, 2025, management believes the Company was in compliance with all covenants.
8
On April 18, 2022, the Company entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term ‘Payment Conditions’ and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.
Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus
1.25
% or
1.50
% per
annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement ("Second Amendment to the Credit Agreement") with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate ("SOFR"). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus
1.36
% to
1.61
%, or an effective interest rate
of
5.52
%
, on September 30, 2025.
On June 3, 2025, the Company entered into a third amendment to its Credit Agreement ("Third Amendment to the Credit Agreement") with Wells Fargo Bank, NA. The amendment reduced the maximum revolving line of credit amount to $
55
million and modified certain definitions in the Credit Agreement which include dollar figures derived from the maximum revolver amount. The reduction in the maximum revolving line of credit amount was initiated by the Company to better align with current and projected borrowing availability under the terms of the Credit Agreement.
As of September 30, 2025, there
were
no
outs
tanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.
Letters of credit outstanding with the Lender as of September 30, 2025, totaled
$
0.9
million.
5. INCOME TAXES
The provision for income taxes for the interim periods is based on an estimate of the Company’s annual effective tax rate adjusted to reflect the impact of discrete items. Management judgment is required in projecting ordinary income to estimate the Company’s annual effective tax rate. The Company’s effective tax rate for the three months ended September 30, 2025, and September 30, 2024, was
21.9
%
and
31.0
%
, respectively. For the three months ended September 30, 2025, the effective tax rate differs from the statutory tax rate o
f
21
% primarily
due to state taxes and the impact of foreign operations, offset by credit for research and development and the impact associated with uncertain tax positions. For the three months ended September 30, 2024, the effective tax rate differs from the statutory tax rate
of
21
% d
ue to state taxes and the impact of foreign operations.
On July 4, 2025, new tax legislation was enacted under the One Big Beautiful Bill Act (the “OBBBA”). The OBBBA includes a wide range of tax provisions that will impact the Company’s financial results in fiscal 2026 and future periods. Significant impacts stemming from the OBBBA include the future expensing of U.S. based research and development expenditures under Internal Revenue Code Section 174, coupled with the option to deduct previously capitalized research and development expenditures. The OBBBA also reestablished elective 100% initial-year bonus depreciation. Due to the timing of enactment within our current period end, the Company has undergone efforts to reasonably estimate the impact of the OBBBA to our condensed consolidated financial statements. The Company does not expect the OBBBA to have an impact on income tax expense.
6. STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans in accordance with ASC 718,
Stock Compensation
, which requires the Company to measure all share-based payments at grant date fair value and recognize the cost over the requisite service period. Restricted shares and restricted stock units (“RSUs”) generally vest over
1
to
3 years
. Stock options are granted at an exercise price equal to the fair value of the Company’s common stock price at the grant date and are exercisable for up to
10 years
from the date of grant. Stock-based compensation is included in selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income. Forfeitures are recognized as incurred.
The following table is a summary of total stock-based compensation expenses for the three months ended September 30, 2025 and 2024.
Three Months Ended
September 30,
(in thousands)
2025
2024
Total stock-based compensation expense
$
1,117
$
1,138
9
On December 14, 2022, the Company’s shareholders approved the Flexsteel Industries, Inc. 2022 Equity Incentive Plan (“2022 Plan”).
The 2022 Plan replaced the Long-Term Incentive Compensation Plan (“LTIP”) and the 2013 Omnibus Stock Plan (collectively, the “Prior Plans”). No further awards will be made under either of the Prior Plans, but these Prior Plans will continue to govern awards previously granted under them.
(1)
2022 Equity Incentive Plan
The 2022 Plan is a long-term incentive plan pursuant to which awards may be granted to certain employees, independent contractors and directors of the Company, in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares or other stock-based awards. For periods beginning on or after July 1, 2023, restricted stock units ("RSUs") and performance stock units ("PSUs") granted to officers and key employees as part of long-term compensation programs are issued from the 2022 Plan. RSUs and PSUs awarded from the 2022 Plan are included in the Long-Term Incentive Compensation or Restricted Share and RSUs tables below.
(2)
Long-Term Incentive Compensation Plan
The LTIP provided for PSUs to be awarded to officers and key employees based on performance goals set by the Compensation Committee of the Board of Directors (the “Committee”). In conjunction with each grant of PSUs, the Committee granted RSUs under the
2013 Omnibus Stock Plan that vested at the end of
three years
.
No
further awards will be issued under this plan.
(3)
2013 Omnibus Stock Plan
The 2013 Omnibus Stock Plan was for key employees, officers and directors and provided for the granting of incentive and nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and performance units
.
No
further awards will be issued under this plan.
Long-Term Incentive Compensation
The table below sets forth, as of September 30, 2025
, the number of unvested PSUs granted at the target performance level for the 2024-2026, 2025-2027, and 2026-2028 performance periods under the 2022 Plan and the number of unvested RSUs granted in conjunction with the PSUs.
For PSUs awarded for the three year performance periods ending June 30, 2026, 2027 and 2028, achievement is based on meeting performance goals set for each year within the three year period. The Committee selected Adjusted Operating Income as the performance metric for the performance periods ending June 30, 2026, 2027, and 2028.
Time-Based Vest (RSUs)
Performance-Based Vest (PSUs)
Total
Weighted Average
Weighted Average
Weighted Average
Fair Value
Fair Value
Fair Value
(shares in thousands)
Shares
Per Share
Shares
Per Share
Shares
Per Share
Unvested as of June 30, 2025
128
$
21.25
191
$
21.09
319
$
21.17
Granted
31
35.94
46
35.94
77
35.94
Vested
(
48
)
19.23
(
72
)
19.23
(
120
)
19.23
Forfeited
(
2
)
25.50
(
3
)
25.49
(
5
)
25.50
Unvested as of September 30, 2025
109
$
26.24
162
$
26.05
271
$
26.15
Total unrecognized stock-based compensation related to the unvested PSUs at the target performance level and the related unvested RSUs
was $
4.3
million
as of September 30, 2025, which is expected to be recognized over a weighted-average period o
f
1.6
y
ears.
10
Restricted Shares and RSUs
A summary of the activity in the Company’s unvested restricted shares and unvested RSUs (not granted in conjunction with PSUs) as of September 30, 2025, is as follows:
Weighted Average
Shares
Fair Value
(in thousands)
Per Share
Unvested as of June 30, 2025
17
$
24.32
Granted
1
32.24
Vested
—
—
Forfeited
—
—
Unvested as of September 30, 2025
18
$
24.76
Total unrecognized stock-based compensation related to unvested restricted shares and unvested RSUs (not granted in conjunction with the PSUs) w
as $
0.2
millio
n as of September 30, 2025, which is expected to be recognized over a weighted-average perio
d of
0.8
year.
Options
A summary of the activity of the Company’s stock option plans as of September 30, 2025, is presented below:
Weighted
Shares
Average
(in thousands)
Exercise Price
Outstanding at June 30, 2025
66
$
18.02
Granted
—
—
Exercised
(
1
)
33.80
Cancelled
(
2
)
43.09
Outstanding at September 30, 2025
63
$
16.98
The following table summarizes information for options outstanding at September 30, 2025:
Options
Weighted Average
Range of
Outstanding
Remaining
Exercise
Prices
(in thousands)
Life (Years)
Price
$
9.97
-
15.14
43
4.6
$
10.62
18.30
-
19.72
6
5.7
18.30
21.96
-
27.57
3
3.3
24.49
31.06
-
32.80
5
2.9
32.80
43.09
-
47.45
6
1.5
44.25
$
9.97
-
47.45
63
4.2
$
16.98
There is
no
unrecognized stock-based compensation expense related to these options as of
September 30, 2025.
Stock-based compensation granted outside a plan
During the quarter ended June 30, 2020, the Company awarded its former Chief Financial Officer/Chief Operating Officer (current Chief Executive Officer)
79,000
options
outside of any Company s
tock plans. All
79,000
options remain outstanding as of
September 30, 2025
, with an exercise price of $
9.97
and a remaining life of
4.5
y
ears. There is
no
remaining unrecognized stock-based compensation expense related to these options.
7. EARNINGS PER SHARE
Basic earnings per share (EPS) of common stock are based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share of common stock include the dilutive effect of potential common shares outstanding. The Company’s potential common shares outstanding are stock options, shares associated with the long-term incentive compensation plans, and non-vested restricted stock units. The Company calculates the dilutive effect of outstanding options and restricted stock units using the treasury stock method. Anti-dilutive options are not included in the computation of diluted EPS when their exercise price is greater than the average closing market price of the common shares.
11
Three Months Ended
September 30,
(in thousands)
2025
2024
Basic shares
5,307
5,203
Potential common shares:
Stock options
98
173
Non-vested restricted stock units and restricted shares
193
200
291
373
Diluted shares
5,598
5,576
Anti-dilutive shares
6
9
Cash dividends declared per common shar
e were $
0.20
for
the three months ended September 30, 2025, and we
re $
0.17
for
the three months ended September 30, 2024
, respectively.
8. SEGMENT INFORMATION
The Company operates as a
one
operating segment and
one
reportable segment reflecting the integrated nature of its operations across various products, manufacturing platforms and sales channels across the entire United States.
The Company's chief operating decision maker (“CODM”) is its
President and Chief Executive Officer
, who has final authority over the allocation of resources, assessment of performance, and key operating decisions.
The CODM manages the business on a consolidated basis and measures segment performance using operating income and net income, which the Company believes provide the best analysis of business performance. The CODM analyzes the performance of operating income and net income to provide insight into all aspects of the segment’s operations and overall success for a given period. In addition, the CODM reviews significant segment expenses focused on cost of sales, selling and general administrative expenses, and restructuring charges, net. These costs used to measure segment profitability are the same costs already reported in the accompanying Consolidated Statements of Income and Comprehensive Income. Similarly, segment assets are reported in the accompanying Consolidated Balance Sheets.
The Company has minimal export sales, primarily to Canada or Mexico. The Company leases and operates three manufacturing facilities in Juarez, Mexico and leases one manufacturing facility in Mexicali, Mexico. Long-lived assets, including property, plant & equipment and right-of-use assets related to leases, located in the United States and Mexico totaled $
42.1
million and $
34.7
million, respectively, at September 30, 2025 and $
42.4
million and $
35.4
million, respectively, at June 30, 2025, respectively.
9. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is subject to various other legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of the Company’s business. The Company does not consider any of such other proceedings that are currently pending, individually or in the aggregate, to be material to its business or likely to result in a material effect on its consolidated operating results, financial condition, or cash flows.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses”, which requires disclosure in the notes to the financial statements of specified information about certain costs and expenses. The amendments are effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the disclosure impacts of this ASU on its consolidated financial statements
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2023 09 “Improvements to Income Tax Disclosures.” The amendments in this ASU are intended to increase transparency through improvements to income tax disclosures primarily related to the income tax rate reconciliation and income taxes paid information. This ASU will become effective for us for the annual period beginning in fiscal year 2026, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on our related disclosures, but do not expect this guidance will have a material impact on our financial position and results of operations.
12
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
GENERAL
The following analysis of the results of operations and financial condition of the Company should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this quarterly report on Form 10-Q.
CRITICAL ACCOUNTING POLICIES:
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our 2025 annual report on Form 10-K.
Overview
The following table has been prepared as an aid in understanding the Company’s results of operations on a comparative basis for the three months ended September 30, 2025 and 2024. The amounts presented are percentages of the Company’s net sales.
Three Months Ended
September 30,
2025
2024
Net sales
100.0
%
100.0
%
Cost of goods sold
76.5
78.5
Gross margin
23.5
21.5
Selling, general and administrative expenses
15.4
15.7
Operating income
8.1
5.8
Interest income
0.4
—
Interest (expense)
—
—
Income before income taxes
8.5
5.8
Income tax provision
1.9
1.8
Net income and comprehensive income
6.6
%
4.0
%
Results of Operations for the Quarter Ended September 30, 2025 vs. 2024
Net sales were $110.4 million for the quarter ended September 30, 2025, compared to net sales of $104.0 million in the prior year quarter, an increase of 6.2%. The increase was driven by our sourced soft seating products, partially offset by lower unit volume in our made-to-order soft seating products and homestyles branded ready-to-assemble category.
Home furnishings backlog was $67 million as of the quarter ended September 30, 2025, an increase of 9.8% compared to $61 million in the prior year quarter.
Gross margin as a percent of net sales for the quarter ended September 30, 2025, was 23.5%, compared to 21.5% for the prior year quarter, an increase of 200 basis points (“bps”). The 200-bps increase was primarily driven by sales leverage, and favorable foreign currency translation of our peso denominated assets in Mexico in the current quarter versus unfavorable foreign currency translation in the prior year quarter.
Selling, general and administrative (“SG&A”) expenses increased $0.7 million to $17.0 million in the quarter ended September 30, 2025, as compared to $16.3 million in the prior year quarter. As a percentage of net sales, SG&A was 15.4% in the quarter ended September 30, 2025 compared to 15.7% of net sales in the prior year quarter. The 30-bps decrease was mainly due to leverage on higher sales, partially offset by investments in growth initiatives.
Income tax expense was $2.1 million, or an effective rate of 21.9% for the quarter ended September 30, 2025, compared to an income tax expense of $1.9 million, or an effective rate of 31.0% during the quarter ended September 30, 2024. For the quarter ended September 30, 2025, the effective tax rate differs from the statutory tax rate of 21% primarily due to state taxes and the impact of foreign operations, offset by credits for research and development and the impact associated with uncertain tax positions. The decrease in tax rate from the prior year quarter is primarily the result of lesser impact of taxes on foreign operations due to higher profits, a benefit in the current period for the adjustment of uncertain tax positions and a larger credit for research and development compared to the prior year.
13
Net income was $7.3 million, or $1.31 per diluted share for the quarter ended September 30, 2025, compared to net income of $4.1 million, or $0.74 per diluted share in the prior year quarter.
Liquidity and Capital Resources
Working capital (current assets less current liabilities) on September 30, 2025, was $116.9 million compared to $110.4 million on June 30, 2025. The $6.5 million increase in working capital was primarily due to an increase in other current assets of $6.6 million, a decrease in payroll and related liabilities of $5.4 million, and a decrease in other current liabilities of $1 million, offset by an increase in accounts payable of $3.1 million, a decrease in inventory of $2.2 million and a decrease in cash of $1.4 million. Refer to discussion of working capital changes below, under
Net cash provided by operating activities
. Capital expenditures were $1.4 million during the three months ended September 30, 2025.
A summary of operating, investing, and financing cash flow is shown in the following table:
Three Months Ended
September 30,
(in thousands)
2025
2024
Net cash provided by operating activities
$
4,114
$
2,398
Net cash (used in) provided by investing activities
(1,357
)
728
Net cash (used in) financing activities
(4,178
)
(2,147
)
(Decrease) increase in cash and cash equivalents
$
(1,421
)
$
979
Net cash provided by operating activities
For the three months ended September 30, 2025, net cash provided by operating activities was $4.1 million, primarily due to net income of $7.3 million, adjustments for non-cash items including deferred income tax expense of $3.4 million, stock-based compensation of $1.1 million and depreciation of $0.8 million, as well as changes in operating assets and liabilities including an increase in accounts payable of $3.3 million, and a decrease in inventory of $2.2 million, offset by a decrease in accrued liabilities of $7.1 million, and a decrease in other current assets of $6.6 million.
For the three months ended September 30, 2024, net cash provided by operating activities was $2.4 million, primarily due to a decrease in trade receivables of $4.8 million, net income of $4.1 million, adjustments for non-cash items including stock-based compensation of $1.1 million and depreciation of $0.9 million, and a decrease in inventory of $0.7 million offset by a decrease in accrued liabilities of $6.0 million, an increase in other current assets of $1.8 million, a decrease in accounts payable of $1.0 million and a decrease of other assets and liabilities of $0.4 million.
Net cash (used in) provided by investing activities
For the three months ended September 30, 2025, net cash used in investing activities was $1.4 million due to capital expenditures.
For the three months ended September 30, 2024, net cash provided by investing activities was $0.7 million due to proceeds from corporate owned life insurance proceeds of $1.1 million, offset by capital expenditures of $0.4.
Net cash (used in) financing activities
For the three months ended September 30, 2025, net cash used in financing activities was $4.2 million, primarily due to shares withheld for tax payments on vested shares and options exercised of $1.9 million, dividends paid of $1.1 million and treasury stock purchases of $1.1 million.
For the three months ended September 30, 2024, net cash used in financing activities was $2.1 million, due to payments on the line of credit of $104.1 million partially offset by proceeds from the line of credit of $102.9 million and dividends paid of $0.9 million.
Line of Credit
On September 8, 2021, the Company, as the borrower, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association (the “Lender”), and the other lenders thereto. The Credit Agreement has a five-year term and provided for up to an $85 million revolving line of credit. Subject to certain conditions, the Credit Agreement also provides for the issuance of letters of credit in an aggregate amount up to $5 million which, upon issuance, would be deemed advances under the revolving line of credit. Proceeds of borrowings were used to refinance all indebtedness owed to a prior lender and for working capital purposes. The Company’s obligations under the Credit Agreement are secured by substantially all its assets, excluding real property. The Credit Agreement contains customary representations, warranties, and covenants, including a financial covenant to maintain a fixed coverage ratio of not
14
less than 1.00 to 1.00. In addition, the Loan Agreement places restrictions on the Company’s ability to incur additional indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, and to merge or consolidate with other entities. As of September 30, 2025, management believes the Company was in compliance with all covenants.
On April 18, 2022, the Company entered into a first amendment to the Credit Agreement (“First Amendment to the Credit Agreement”), with the Lender, and the lenders thereto. The amendment to the Credit Agreement changed the definition of the term "Payment Conditions" and further defined default or event of default and the calculation of the Fixed Charge Coverage Ratio.
Subject to certain conditions, borrowings under the Credit Agreement initially bore interest at LIBOR plus 1.25% or 1.50% per annum. On May 24, 2023, the Company entered into a second amendment to the Credit Agreement (“Second Amendment to the Credit Agreement”) with the Lender to transition the applicable interest rate from LIBOR to Secured Overnight Financing Rate (“SOFR”). Effective as of the date of the Second Amendment to the Credit Agreement, borrowings under the amended Credit Agreement bear interest at SOFR plus 1.36% to 1.61%, or an effective interest rate of 5.52%, on September 30, 2025.
On June 3, 2025, the Company entered into a third amendment to its Credit Agreement ("Third Amendment to the Credit Agreement") with Wells Fargo Bank, NA. The amendment reduced the maximum revolving line of credit amount to $55 million and modified certain definitions in the Credit Agreement which include dollar figures derived from the maximum revolver amount. The reduction in the maximum revolving line of credit amount was initiated by the Company to better align with current and projected borrowing availability under the terms of the Credit Agreement.
As of September 30, 2025, there were no outstanding borrowings under the Credit Agreement, exclusive of fees and letters of credit.
Letters of credit outstanding with the Lender as of September 30, 2025, totaled $0.9 million.
Contractual Obligations
As of September 30, 2025, there have been no material changes to our contractual obligations presented in our Annual Report on Form 10-K for the year ended June 30, 2025.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
General
– Market risk represents the risk of changes in the value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. As discussed below, management of the Company does not believe that changes in these factors could cause material fluctuations in the Company’s results of operations or cash flows. The ability to import furniture products can be adversely affected by political issues in the countries where suppliers are located, as well as disruptions associated with shipping distances and negotiations with port employees. Other risks related to furniture product importation include government imposition of regulations and/or quotas; duties, taxes or tariffs on imports; and significant fluctuation in the value of the U.S. dollar against foreign currencies. Any of these factors could interrupt supply, increase costs, decrease demand, and decrease earnings.
Foreign Currency Risk
– During the quarters ended September 30, 2025 and 2024, the Company did not have sales but had purchases and other expenses denominated in foreign currencies, primarily the Mexican Peso. The wages of our employees and certain other employee benefits and indirect costs related to our operations in Mexico are made in Pesos and subject to foreign currency fluctuation with the U.S. dollar. The Company does not employ any foreign currency hedges against this operating expense exposure. A negative shift in the value of the U.S. dollar against the Peso could increase the cost of our manufactured product. In addition, the Company has certain asset and liabilities related to our manufacturing operations which are denominated in pesos, primarily our VAT receivable for recoverable VAT paid in Mexico. A negative shift in the value of the Peso against the U.S. dollar could result in the value of our receivable decreasing which may impact our earnings. The Company does not currently hedge this foreign currency risk. See “Risk Factors” in Item 1A in the most recent Annual Report on Form 10-K for further discussion.
Interest Rate Risk
– The Company’s primary market risk exposure regarding financial instruments is changes in interest rates. On September 30, 2025, the Company had no outstanding borrowings on its line of credit, exclusive of fees and letters of credit.
Item 4.
Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective as of September 30, 2025.
15
(b)
Changes in internal control over financial reporting.
During the quarter ended September 30, 2025, there were no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Cautionary Statement Relevant to Forward-Looking Information for “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995
The Company and its representatives may from time to time make written or oral forward-looking statements concerning long-term goals or anticipated results of the Company, including statements contained in the Company’s filings with the Securities and Exchange Commission and its reports to stockholders.
Statements, including those in this Quarterly Report on Form 10-Q, which are not historical or current facts, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause the Company’s results to differ materially from those anticipated by some of the statements made herein. Investors are cautioned that all forward-looking statements involve risk and uncertainty. Some of the factors that could affect results are the cyclical nature of the furniture industry, supply chain disruptions, litigation, restructurings, the effectiveness of new product introductions and distribution channels, the product mix of sales, pricing pressures, the cost of raw materials and fuel, changes in foreign currency values, retention and recruitment of key employees, actions by governments including laws, regulations, taxes and tariffs, the amount of sales generated and the profit margins thereon, competition (both U.S. and foreign), credit exposure with customers, participation in multi-employer pension plans, disruptions or security breaches to business information systems, the impact of any future pandemic, and general economic conditions. For further information regarding these risks and uncertainties, see the “Risk Factors” section in Item 1A of our most recent Annual Report on Form 10-K.
The Company specifically declines to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
PART II OTHER INFORMATION
Item 1A.
Risk Factors
There has been no material change in the risk factors set forth under Part 1, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2025.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On December 11, 2024, the Board of Directors approved a share repurchase program authorizing the Company to purchase up to $30 million of the Company’s common stock.
The following table summarizes the activity of the common stock repurchases made during the three months ended September 30, 2025.
Total Number
Average
Total Number
of Shares
Approximate Dollar
Value of Shares
of Shares
Price Paid
Purchased
that May Yet
Period
Purchased
per Share
as Part of Plan
Be Purchased
July 1, 2025, to July 31, 2025
17,468
$
37.92
17,468
$
29,337,625
August 1, 2025, to August 31, 2025
13,558
34.47
31,026
28,870,242
September 1, 2025, to September 30, 2025
—
—
31,026
28,870,242
Three months ended September 30, 2025
31,026
$
36.41
31,026
$
28,870,242
16
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2025,
no
director or officer of the Company adopted,
modified
or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408(a) of Regulation S-K.
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104.Cover Page
Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith
**
In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.”
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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